| Five financial risks to consider in retirement
Most people don't know that 80 percent of mountain-climbing accidents don't occur on the way to the summit — they happen on the way down, says financial expert and extreme sports enthusiast David Rosell.
Although arriving at the top of the mountain is considered by many mountaineers to be one of life's greatest accomplishments, I can tell you firsthand that summiting is not the ultimate goal for climbers," says Rosell, CEO of Rosell Wealth Management and author of "Failure is NOT an Option," (www.DavidRosell.com).
"They know that most climbing accidents and deaths occur on the descent. With this in mind, they will tell you that their objective is to reach the summit and get back down alive to see their family and friends. They understand that the second half of their journey presents the greatest risk and requires the most planning."
"Likewise, we need to think of retirement as the descent from the financial mountain, which can be treacherous."
Retirees and pre-retirees need to evolve from the traditional view of retirement, especially with so much legitimate concern about an unprecedented retirement crisis on our immediate horizon, he says. According to a 2013 report by the National Institute on Retirement Security, 45 percent of working-age American households have no retirement savings.
That's on top of the 3.5 million baby boomers who have been retiring each year, and will continue to do so for more than a decade.
To help his clients thrive while experiencing descending their own financial mountains, Rosell briefly touches upon five major financial risks many experience during retirement:
• Inflation: During the second half of your financial journey, it's critical that you're able to maintain your purchasing power. Inflation simply means that every year your money buys a little — or a lot — less than it did the year before. Currently, inflation is 3.5 percent, which doesn't sound like much. However, even if the rate holds steady and doesn't increase, prices will have doubled in 20 years.
• Longevity: According to Census Bureau, the over-80 population is increasing five times faster than the overall population. By 2030, the demographics of 32 states will resemble those of Florida today.
• Health/long-term care: Sadly, the escalating costs associated with long-term care during retirement can make the possibility of outliving one's retirement income a reality for many.
• Market risk: Economic recessions have occurred throughout the history of modern economics and always will, averaging one almost every nine years. If the market loses 50 percent one year and then increases 50 percent the following year, where are you? Many people get this wrong; after the fall and subsequent rise of 50 percent, you will have lost 25 percent. "This happened twice in the last decade," Rosell says.
• The sequence of returns: Gains or losses, or the order in which you receive your returns, can have a major impact on your retirement portfolio. It can mean the difference between having enough income in retirement and running out of money too soon. Be careful when an analysis states that you should achieve your goals by obtaining a specific rate of return. In most cases, this statement has not accounted for the sequence of returns.
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