3 Retirement Challenges

As with all individual investments, there are unique challenges in retirement planning that can dramatically alter the quality of your post-work lifestyle. When you're nearing or in the early stages of retirement, the time to understand and address key risks is now.

Outliving your retirement income

The good news is that we're living longer as a result of more healthful lifestyles and advances in medical science.

But living longer could be challenging if you're not prepared with a reliable income stream that lasts up to 30 years or more.

For instance, the average life expectancy increased by 10 years between 1950 and 2010.1 This translates into the need for 120 additional monthly income payments to help cover expenses.

Will your retirement portfolio generate income for that long?

Rising costs (inflation, taxes, and healthcare)

Soaring health care costs concern everyone. They're an even bigger threat in the years when health issues are more likely to arise. Medicare only covers a part of medical bills and prescriptions, so your out-of-pocket costs are likely to rise in retirement.

Then there are interest rates and inflation, both comparatively low today compared to the last 70 years.

And while taxes today are relatively low across all income brackets, a soaring U.S. national debt of over $15.23 trillion2 means there's a chance that taxes may increase, taking a bigger bite out of your retirement income.

Rising costs may be a reality retirement investors will need to face.

Market uncertainty and volatility

The last few years offer a sobering reminder about market volatility: Even with a solid retirement plan, you can still have the misfortune of experiencing a market downturn just before or after you retire.

The financial markets have experienced some dramatic swings over the last decade. And market volatility has become even more of a factor in recent years. In fact, between 2008 and 2011 the S&P 500 had 147 days with a movement of 2% or more in either direction.3

Traditionally safer havens offer little support, as our low interest rate environment makes it difficult to find yields high enough to produce the income you'll need.

What can you do to avoid short-term decisions that could compromise your long-term retirement security?

1. Source: http://kclibrary.lonestar.edu/decade50.html, accessed May 4, 2011

2. Source: USA Today, U.S. Debt is Now Equal to Economy, January 9, 2012 [www.usatoday.com/news/washington/story/2012-01-08/debt-
    equals-economy/52460208/1]

3. Source: Vanguard calculations, using data provided by Thomson Reuters Datastream and Barclay’s Capital, 2012.