As people look forward to retirement, some do so with a feeling of contentment, while others feel uncertain about the future. Most people in the former category probably have a system in place for retirement. Having a backup plan for the future always gives one peace of mind.
A retirement plan should be to have a safe nest egg to take you through your post-work years. According to RetirementIncome.net, a good retirement goal is to have a regular source of income that out-lives you and not vice-versa.
If you have been growing your retirement savings, here are some tips to ensure your income is adequately protected.
Consider an income protection cover
As the name implies, an income protection cover is designed to provide its beneficiary with an income if they are unable to work for reasons such as sickness or disability.
Knowing the various income protection covers is essential to guiding your selection. There are short-term income protection policies; for example, accident, illness and job loss. Most of these products will generally pay out after a few years, and are often for people who hope to work afterwards.
You’ll want to consider the long-term income protection policy which will pay you regular income over a sustained period of time. However, before you commit financially to any plan, ensure you:
- Know the amount of income protection cover you need
- See what other income benefits are available
- Know the cost of income protection policy premiums
You can find out more about the various types of policies here.
Factor inflation into your existing savings strategy
Overlooking inflation is a common mistake most people make ahead of retirement. If not provided for, inflation can cause severe losses to one’s whole retirement savings over time. Especially if your returns are not matching the rise in prices.
In a study conducted by LIMRA Secure Retirement Institute, a 2% inflation rate can eat into earnings by as much as $73,000 (£59,400) over a period of 20 years. As the inflation rate increases, the drain on income becomes more noticeable.
The smart thing to do as an investor and soon-to-be retiree, is make provision for future inflation. By making realistic projections and including it in your retirement savings plan, you won’t be affected or blindsided in the future.
Over the last century, there has been and inflation rate averaging 3% to 4%; it is advisable to work with the same figures in your projection. For more details on the LIMRA studies, see this page.
Use a multi-pronged system for your health expenses
As you advance in age (and wisdom), there’ll be a notable decline in your health. Although this is normal, it can be damaging to your retirement savings. Early preparation is the best way to stay ahead of any unforeseen health issues. Don’t wait to fall sick, start saving for a health plan.
If you are in good health, the best step to take is to arrange for a significant deductible health insurance plan. You are also entitled to some tax benefits when you do so. Another option is a long-term care insurance which protects your retirement savings. However, this may require a higher premium.
Understand what you are paying for
There are many fees that accompany different services, and recently, there has been some concern about whether most of them are necessary. Go through your investment portfolio regularly to understand how much some of the services are costing you and if you really need them. The difference between a 0.5% fee and a 1.5% can add significantly to your retirement savings over time.
The best time to get this checked is now as it might be too late in the future. For better understanding of your portfolio, consult a trusted financial adviser.