The biggest threats to financial security

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Editor’s Note: This story originally appeared on NewRetirement.

Inflation, interest rates, war in Ukraine, energy prices, deficits, taxes, insurance costs, bear markets, recession, housing crash, housing shortage, income disparity, a weak global economy and the list of economic woes goes on and on.

Never mind your own competing priorities for children, housing, savings, and aging parents.

But what are the real threats to your financial security? And, more importantly, what can you actually control or do about the economic issues that concern you most?

Retirement Readiness and Prospects from Goldman Sachs Report 2022 describes the difficulties that most affect people close to retirement and already retired.

Here are some of the biggest threats to financial security and how you can protect your money.

Inflation

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The number of people worried about inflation has risen from 42% in 2021 to 71% today.

Rising costs put a real brake on your financial security. As such, you want to ensure as much inflation-proof income as possible for your retirement. In fact, striving to cover 100% of your mandatory fixed expenses with inflation-protected income is a good goal.

Social security, some pensions and annuities are protected against inflation. And if your investments are earning a higher rate of return than the rate of inflation, your withdrawals could also be considered inflation-protected.

Use the NewRetirement planner to assess your inflation-protected sources of income. The lifetime income projections table allows you to see your different sources of income. You can also use the detailed budget (Expenses > Recurring expenses > Planner + Budget) to define your necessary and flexible spending needs, then switch between the two different budgets to evaluate your plan at different spending levels.

The best way for most households to deal with inflation is to reduce or control their spending. With the job market still strong, working longer or getting a job in retirement could become a bigger trend.

Longevity

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By the most significant measures, living a long life is the goal. However, a longer life requires more money and a better plan.

Use the NewRetirement Planner to assess your chances of success and your money-free age at different longevity goals. We generally recommend that you forecast at least your expected longevity plus 10 years to act as a chance margin of error.

Try one of 10 Best Life Expectancy Calculators and plan for a long life of financial security.

Short of money: long-term income risk

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Even if you’re already retired, you can probably manage in the short term with inflation at near record highs, but the real question is: will you run out of money in the future?

The NewRetirement Planner can help you answer this question. You can explore your “luck of success” score or assess your age without money. And, you can explore these metrics using different worst-case and best-case scenarios.

Make contingency plans like spending less, downsizing your home, or getting a retirement work for your worst case scenarios.

The financial whirlwind and the risks for savings rates

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The Goldman Sachs report refers to the myriad of financial priorities, life events and planning assumptions, which often impact a worker’s ability to contribute to their retirement savings as a “vortex financial “. Starting in midlife, financial pressure mounts as people juggle very real spending needs. Moreover, the study reveals that these competing financial needs put retirement savings at risk.

However, most experts recommend that households prioritize saving for retirement over most other competing priorities. Your child may get a student loan and your aging parents may opt for Medicaid, but no one else will fund your retirement.

Evaluate what’s right for you and see what you can really afford.

Lifestyle risk

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It is commonly suggested that 70% of your pre-retirement income is needed to maintain your standard of living in retirement. But the Goldman Sachs survey found that only 25% reach retirement and receive at least 70% of pre-retirement income and more than half (51%) receive less than 50% of their pre-retirement income.

The figures suggest that the majority of retirees are living below the lifestyle they enjoyed during their working years.

The NewRetirement Planner lifetime income projection chart can help you visualize your income and desired expenses over your lifetime. It’s a good idea to display this graph with different best and worst case scenarios. What your expenses and income look like:

  • High and sustained levels of inflation?
  • Low return on investment?
  • High and low spending levels?

Health risks and concerns about long-term care and medical costs

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According to loyalty Estimated Retiree Health Care Costs, an average retired couple age 65 in 2022 might need about $315,000 in savings (after tax) to cover retirement health care expenses.

These are charges not covered by Medicare and do not even include the potential costs of needing long-term care.

Death of a spouse: it’s not just your financial security that’s at risk

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The Goldman Sachs study suggests that very few people actually worry about how their spouse will fare after they’re gone. And, previous research has found that the majority of married couples plan their retirement on their own, without consulting their partner.

It is a mistake. Households need their income to last for all parties involved. The NewRetirement Planner is one of the few online tools that fully takes into account all aspects of a spouse’s current and financial situation.

The sustainability of Social Security and other government retirement benefits

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Nearly half of those polled by Goldman Sachs fear there will be cuts to future Social Security benefits.

While the government is highly unlikely to cut benefits to anyone already collecting them or set to start them soon, Social and Medicare are struggling financially. And, there is talk in Washington, DC, of ​​possibly raising the age at which benefits begin, reducing benefits for people earning certain amounts, or otherwise addressing the fact that these programs will become insolvent.

It may be important for young workers to take even more responsibility for their future financial security by saving more.

Focus on what you can control

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In any stressful situation, it’s important that you focus on what you can control. You can’t change the global economy, but you can determine what you spend and, to some extent, what you earn and save.

Reducing expenses and working longer or getting a job in retirement are activities that many households are now considering. These are relatively simple and very effective strategies for coping with economic difficulties.

Optimizing your savings, investments, taxes, and insurance are more sophisticated and viable strategies to improve your financial security as well.

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