Retirement planning is already difficult enough, but the unknown factors that will affect your retirement planning in the future make it even more difficult to determine how much you should be saving for retirement. Some people are overly optimistic about the effects that these factors will have on their plan for retirement, causing many to save less than they should and putting them in a precarious financial position during their retirement years. Other people focus on these factors too much, sacrificing their current lifestyle to save as much as they can for retirement. Finding the right balance between the two extremes is necessary for securing both your lifestyle today and your lifestyle during retirement. Here are some of the factors you should keep in mind when retirement planning.
The Effects Of Inflation
If you are not planning to retire for at least another decade, the inflation that occurs during that time period will have a significant effect on the value of your retirement savings after you retire. The longer you are in retirement, the greater the impact inflation is likely to have on the purchasing power of your money and the quality of your lifestyle. The effects of inflation must be taken into account when retirement planning if you hope to save enough money to live comfortably during your retirement years.
The Effects Of Market Volatility
The stock market has become substantially more volatile over the past decade, making it harder for investors doing their retirement planning to determine the best investments to hold long term in their retirement account portfolios. Timing and luck have become just as important as choosing sound investments with a limited amount of risk associated with them. A market downturn when you are less than five years away from retiring will have a considerable impact on your investment returns that could be difficult to recover from within the amount of time left before you retire. Hedge your bets by diversifying your portfolio and rebalance it to get more conservative as you approach your target retirement date.
The Effects Of Living Longer
With lifespans progressively getting longer, more people are at risk of outliving their savings during retirement. Today, the average lifespan of people in the United States is about 78 years old, but some people live considerably longer, living as much as 30 years after retirement. Today’s retirees need to ensure that their retirement income can last for that long because not properly accounting for longevity risk in retirement planning can dramatically impact their quality of life in retirement or even ending their retirement as they are forced to go back to work to make ends meet.