Great plans are often thwarted by unexpected events. Our collective experiences with COVID-19 clearly illustrate this principle.
Even those with guaranteed retirement income through pensions and annuities (which is basically a personal pension) will likely face an income gap in retirement when any number of risks become a reality. But we've been ignoring a risk present all along, capital risk.
Before I dive into capital risk let me highlight a few others.
Commonly discussed risks are: inflation, taxes, market and health. Perhaps most overlooked is the compounding risk of living longer (longevity risk).
Longevity multiplies the effect of other risks. Our planning would be simplified if we knew our date of death. We do know that an average life expectancy means 50% of us will live past that! Also, married people tend to live longer, with at least one spouse living past 93 30% of the time.
The multiplying effect of longevity is easily revealed by the inflation risk; a 2% average inflation rate has little effect in one year, but over 20 years it results in your buying power cut 33% ($10,000 becomes $6730). Of course it's much worse with an average inflation rate of 4%, resulting in a 55% reduction ($10,000 reduced to buying $4564).
Another risk that shows longevity's impact is Custodial care (non-medical long-term care). This risk is real, with the potential to create an even greater income gap. 70% of those 65 or older will need
long-term care. National average
for in-home health aide can easily exceed $60,000 annually. If this lasts 3 years, that's an additional $180,000 you'll need. Imagine the costs for skilled care, or for longer term cognitive disorders like Alzheimer's Disease
. Add to this the fact that rates will almost certainly be higher 20-30 years from now when you need it; perhaps even double with inflation and increased demand from all baby-boomers being 65 or older
Additional risks to consider include:
|Sequence of Returns
Now, what about this Capital risk?
Is "Capital Risk" avoidable? Simply put, capital risk is not having enough capital to invest towards an asset or savings plan. Homeowners aren't stymied by lack of capital. They borrow what they need. Using leverage is possible for your retirement plan too.
If you are like most hard-working individuals, you may not be saving enough for retirement. Instead, you focus on rate of return as the only item to control. But if you are saving only 1% of your income, your rate of return is of little value.
I ask again, can you avoid this risk? What has your financial planner told you? Spend less? I have another answer, and it uses leverage much like you do for your home, allowing you to achieve 60-100% more in retirement assets. Let me show you how this plan addresses other risks too.
Take action, now. Simply knowing what to do is not enough, or we would all be millionaires with healthy bodies to show off.
Time is of the essence. Acting sooner on your plan will have a magnified effect in the long-run. Relying on compound interest requires time. And delaying decisions willl cost you money too, as products you may need are less costly at a lower age.
We want you to be happy in retirement. Review your plan with our team at Thrive Wealth Solutions. We'll examine not just your savings plan, but also weigh the risks to your plan and develop appropriate strategies to reduce or eliminate these risks.
Less risk means a greater chance for your happiness in retirement.