Financial Planning

Managing the Three Big Retirement Risks

Protect yourself against these financial risks and retirement hazards

Managing the Three Big Retirement Risks
 

Saving and investing for retirement boils down to one fundamental job: Identifying the financial risks to your retirement plans, and defending yourself against them.

“We are more responsible for managing our own retirement than we have been in the past, so it’s critical we consider the risks we face,” says Michael Finke, a professor of personal financial planning at Texas Tech University.

Consider the following financial risks—and take steps to minimize their effects:

1. Market risk

Perhaps the most familiar risk investors face, market risk is the possibility that your savings will lose value because of declines in the financial markets. Stocks are particularly susceptible to market risk in the short term. However, stocks’ risk decreases the longer they are held: They’ve produced gains during every period of 20 years or longer since 1926.1 And historically stocks have offered the greatest growth potential of any asset class. Bonds and cash investments offer greater stability but much less growth.

The longer you have until you’ll draw on your savings, the more market risk you can afford to take in pursuit of growth. So if you have a decade or more until retirement, you might hold all but a small portion of your portfolio in stocks. As you approach retirement you can convert some of your stock holdings to bonds and cash to protect what you’ve accumulated.

2. Inflation risk

Rising prices gradually eat away at your savings’ purchasing power. Consumer prices increased by about 2 percent in 2012; historically inflation has averaged about 3 percent a year since 1926.2 “If you haven’t invested in assets that rise with inflation, the money you’ve saved for retirement will buy less over time,” says Finke.

You can combat inflation risk by holding some growth-oriented investments, such as stocks, into retirement. “Retirees should consider accepting some market risk to make sure they have a better chance at beating inflation,” says Finke.

You also might consider investing in products such as Treasury Inflation-Protected Securities (TIPS), which offer inflation-adjusted payments. Social Security, which provides a lifelong income stream, also is adjusted for inflation.

3. Longevity

Life expectancy is on the rise: Today the average 65-year-old man is expected to live to age 84, while the average woman that age is likely to live to 86.3 Longer life spans increase longevity risk, the possibility that you may outlive your savings. 

A diversified portfolio that includes exposure to stocks’ growth potential can help safeguard your income throughout your life. Longevity insurance also may help. These policies offer payments that begin after you’ve reached advanced age.

The risks you face are real, and it’s impossible to avoid them altogether. But if you understand the risks, you can manage them—so you can live the retirement you envision. A financial advisor can help you create a plan based on your particular situation.

For more information about retirement, investing, and financial planning, consult with a SunTrust Investment Services Financial Advisor or learn more how SunTrust can help you with your retirement and investments needs.


1 Ibbotson 2012 Classic Yearbook

2 http://www.bls.gov/news.release/archives/cpi_01162013.htm

3 http://www.ssa.gov/oact/population/longevity.html

Past performance does not guarantee future results

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Related

Investment and Insurance Products:

Are Not FDIC or any other Government Agency Insured   Are Not Bank Guaranteed  May Lose Value 

© 2018 SunTrust Banks, Inc

equal housing logoSunTrust Bank is an Equal Housing Lender. Member FDIC

equal housing logoEqual Housing Lender. SunTrust Mortgage, Inc

SunTrust, SunTrust Mortgage, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are federally registered service marks of SunTrust Banks, Inc. All other trademarks are the property of their respective owners.

Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company and SunTrust Banks Trust Company (Cayman) Limited. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are provided by SunTrust Mortgage, Inc.

SunTrust Mortgage, Inc. - NMLS #2915, 901 Semmes Avenue, Richmond, VA 23224, 1-800-634-7928. CA: licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, IL: Illinois Residential Mortgage Licensee #MB-989, Department of Financial and Professional Regulation, 100 W. Randolph, Suite 900, Chicago, IL 60601, 1-888-473-4858, MA: Mortgage Lender license #-ML-2915, NJ: Mortgage Banker License - New Jersey Department of Banking and Insurance, NY: Licensed Mortgage Banker—NYS Department of Financial Services, and RI: Rhode Island Licensed Lender.

"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.

SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Banks Trust Company (Cayman) Limited, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.

SunTrust Bank and its affiliates do not accept fiduciary responsibility for all banking and investment account types offered. Please consult with your SunTrust representative to determine whether SunTrust and its affiliates have agreed to accept fiduciary responsibility for your account(s) and if you have completed the documentation necessary to establish a fiduciary relationship with SunTrust Bank or an affiliate. Additional information regarding account types and important disclosures may be found at www.suntrust.com/investmentinfo.

SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.