WHO’S MANAGING THE RISKS IN YOUR RETIREMENT?
By Jeff Ritchie, Trust Officer, Hills Bank Trust and Wealth Management Group, Linn County LIVING WELL Magazine
Are you thinking about retiring? Perhaps you are already there. Either way, it is important for you to consider the various risks that can impact your retirement portfolio. By understanding the risks, you can take affirmative steps to ensure your retirement stays on track.
An important risk to consider is “inflation” – the increase in the cost of goods and services over time. Even with a relatively modest rate of inflation you stand to lose half your purchasing power in 20 years. Incorporating certain types of investments into your portfolio can serve to hedge against inflation.
Another risk is market volatility. Stocks are subject to downside risk, and temporary, but significant declines can occur at any time for a whole host of reasons. Ensuring your portfolio is properly diversified can reduce the volatility in your portfolio.
A third risk in retirement is commonly referred to as the “sequence of returns.” When you save regularly for retirement during your working years, your invested dollars buy more shares when the market is down and buy less when the market is up. However, when you begin taking distributions in retirement, the opposite occurs. To raise cash, you will have to sell more shares when the market is down. To protect against this risk, you should set aside several years’ worth of living expenses to avoid having to sell any stocks in a down market.
Taxes are yet another risk that can impact your retirement. How your investments are managed can affect your tax liability. Does your advisor know what tax bracket you are in? Is your advisor engaged in tax planning with you?
A final and unfortunate risk to retirees is the inevitable decline in health, both mentally and physically. As you get older, it is increasingly important to have well-established relationships with trusted professionals who understand your needs and objectives. These trusted professionals include physicians, attorneys, accountants and wealth management advisors. It is essential that these professionals fully understand your views on risk and that their interests are aligned with yours.
The Hills Bank Trust and Wealth Management Group can be reached in Coralville at 319-338-1522, Cedar Rapids at 319-654-8020 or toll-free at 1-800-899-8858. Visit our Financial Resource Center by clicking the “Wealth Management” tab at www.hillsbank.com.