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4 Big Factors That Could Derail Your Retirement Security

By Christy Bieber – Jan 12, 2022 at 7:45AM

Key Points

  • Seniors need to make sure their nest egg produces enough income to help support them.
  • Making the wrong investment choices could affect their ability to live comfortably.
  • So could underestimating certain expenses or underestimating how long they'll need to rely on savings.

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If you make these mistakes, you could end up with a nest egg that's too small to support you.

When you work hard all your life, you deserve a secure retirement. Unfortunately, even if you take steps to prepare for your future, you could end up facing money woes in your later years. 

There are four common reasons many seniors unexpectedly end up struggling financially. If you plan for them, you may be able to avoid this fate. 

Two adults looking at laptop together.

Image source: Getty Images.

1. Investing too conservatively

As you get older, shifting to a more conservative asset allocation makes a lot of sense. You aren't going to be able to wait out market downturns if you're very close to the time you need to draw from your nest egg. And the closer you get to retirement, the more difficult it would be to rebuild if you suffered big investment losses.

But while it makes sense to be conservative in your investments later in life, you don't want to be so risk-averse that you make it impossible to earn the necessary returns for your money to last for the rest of your life. If you shift to keeping most of your money in cash, for example, you may lose ground to inflation. And if you don't have a reasonable amount of money in the stock market, you risk running your nest egg dry as you make withdrawals because the money that remains won't grow fast enough.

If you aren't sure whether your investments are too conservative, subtract your age from 110. If you have less than this percentage of your money in the stock market, you may want to rethink your investment strategy.

2. Unplanned health-care costs

Health issues can hit earlier than expected and be costlier than you'd anticipated.

You can't count on Medicare to cover all your costs, because there are copays and co-insurance expenses, as well as many common care needs that are excluded from coverage. You also must pay premiums for Medicare, as well as for a Medigap supplemental policy to fill coverage gaps. 

Recent studies have shown the average man turning 65 in 2021 would need about $143,000 to cover health care throughout retirement, while the average woman would require around $157,000. Before retiring, prepare for these costs by saving money earmarked for medical care, either in a health savings account (HSA) if you're eligible for one or in another tax-advantaged retirement plan. 

If you've reached retirement already and are worried that unplanned health-care costs could be a problem, be sure to shop for Medicare plans very carefully to find comprehensive coverage, while also taking preventative steps to reduce the risk of needing expensive medical care. 

3. Living longer than expected

A long life span sounds good, but remember that the longer you live, the longer your savings need to last.

If you anticipated a 20-year retirement and you leave work at 65 and live until 95, you could be in a lot of financial trouble if your nest egg has run dry in your late 80s. By that time, it's unlikely you'll be able to return to work and earn a little to help stretch your savings. 

To ensure that living a long time is something to celebrate rather than a reason to worry about your finances, set a safe withdrawal rate that will allow your money to last, no matter how long you need to rely on it. 

4. Not watching investment fees

Failing to watch out for high investment fees that eat into returns increases the chances you'll run short of funds. Large fees are especially damaging if you pay them throughout your years of saving for retirement, because they'll have an outsized impact when your investing time line is so long. 

Pay attention to the fees you pay for your employer-sponsored 401(k). If the administrative costs are high, consider investing only enough to earn your employer's matching contribution and then choose another, less expensive savings account. If you're buying ETFs or mutual funds, consider the management fees and expense ratios when picking which ones to purchase. And if you're buying other assets, look for a brokerage firm that charges low or no commissions. 

If you can avoid all four of these errors, you probably can have the security you deserve throughout your retirement years.

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