Uncertainty stinks -- especially when it wrecks your retirement. Failing to prepare for the unexpected has left many older folks unhappily blindsided in their golden years. Fortunately, there are ways to plan even for the things you can't always see coming.
Lifespans and returns
Retirees face two huge uncertainties above all else: How long they'll live, and what returns they'll earn on their nest eggs.
Over the long term, the stock market has averaged roughly 10% a year, versus about 6% for long-term government bonds. However, your actual results may be quite different from those simple averages. With 10-year Treasuries yielding less than 3% right now, you certainly can't count on 6% from bonds in the immediate future.
Many people quell these uncertainties with an immediate fixed annuity. In exchange for a big lump sum payment, insurance companies will pay you a fixed sum regularly for a period of time ranging from a few years to the rest of your life. It's not cheap, but if you have the resources, it can offer enormous peace of mind.
You might also consider longevity insurance, which generally kicks in at an older age and pays you until death.
The best investments
With no crystal ball for Wall Street, you can't know which of your retirement investments will turn out well. Still, history points to a few candidates most likely to perform strongly over the long haul.
Healthy dividend payers are a good bet, paying you to hold them no matter what the economy does, and offering the potential for solid stock-price appreciation, too. Consider tobacco giant Altria
For an even more drool-worthy yield, check out Annaly Capital Management
Need another sound strategy to prepare for anything the future might throw at you? Simply buy the entire market, instead of trying to determine which subsets will perform best. The ultra-low-cost Vanguard Total Stock Market ETF instantly plunks you in all American stocks, while the iShares iBoxx $Investment Grade Corporate Bond ETF gives you a wide range of corporate bonds.
And at least one retirement investment makes a real no-brainer. Retirement accounts such as tax-advantaged IRAs and 401(k)s can accelerate your returns, especially when employers offer matching funds. (Who doesn't like free money?)
We can only guess how much health care may ultimately cost us in retirement. The folks at Fidelity recently estimated that an average 65-year-old couple retiring now will spend about $230,000 on health care during the rest of their lives.
You can combat these looming expenses with long-term care insurance. Just bear in mind that, fittingly enough, many such insurers haven't done the best job of estimating their future obligations. Insurers such as Genworth Financial
Finally, retirees must face the ever-shifting possibilities of inflation, which can eat away at the buying power of future payouts. To fight back, seek annuities that adjust for inflation, or invest in dividend-paying stocks, which tend to increase their payouts over time. You may also find certain stocks likely to profit from rising prices; for instance, Southern Copper
Also consider ETFs such as the SPDR DB International Government Inflation-Protected Bond
No shortage of uncertainty awaits you in retirement -- but smart action now can help you be ready for whatever the future holds.