Lesie Hammock discussing The 5 Risks of Retirement
Listen to the interview on the Business Innovators Radio Network: https://businessinnovatorsradio.com/interview-with-leslie-hammock-founder-of-retire-by-design-discussing-the-5-risks-of-retirement/
In this episode of Influential Entrepreneurs, host Mike Saunders welcomes Leslie Hammock, founder of Retire by Design, to discuss the critical risks associated with retirement. Leslie shares his personal journey into the financial services industry, which began after the tragic loss of his father where a drunk driver killed him. Inspired by the positive impact of a good advisor on his family’s financial situation, he dedicated himself to helping others achieve financial confidence. With over 40 years of experience, Leslie reflects on the evolution of the industry and emphasizes the importance of understanding retirement risks to prepare effectively. Tune in to learn valuable insights from Leslie’s extensive knowledge and experience.
Understanding the Various Risks of Retirement
Effective retirement planning requires a comprehensive understanding of the various risks that can impact an individual’s financial security during their retirement years. In a recent podcast episode featuring Leslie Hammock, founder of Retire by Design, several key risks were discussed, including market risk, tax risk, longevity risk, interest rate risk, and long-term care risk. Here’s a deeper look into each of these risks:
- Market Risk
Market risk refers to the potential for losses due to fluctuations in the financial markets. Leslie describes investments in the market as “red money,” indicating the inherent volatility and risk associated with these assets. Proper diversification is critical to managing market risk. Leslie emphasizes the importance of having a well-structured portfolio that includes non-correlated assets to protect against downturns. Additionally, understanding the sequence of returns risk is vital; if a market downturn occurs early in retirement, it can severely impact the sustainability of retirement income.
- Tax Risk
Tax risk involves the uncertainty surrounding future tax laws and their potential impact on retirement income. Leslie points out that tax laws can change frequently, and significant tax increases could occur if current tax cuts are not renewed. One specific concern is the Income Related Monthly Adjustment Amount (IRMAA), which can affect Medicare costs based on income levels. This can lead to higher out-of-pocket expenses for retirees, potentially eroding their Social Security benefits. Therefore, proactive tax planning is essential to minimize tax liabilities in retirement.
- Longevity Risk
Longevity risk is the risk of outliving one’s savings due to increased life expectancy. As medical advancements continue to improve healthcare, people are living longer, which can lead to financial strain if retirement savings are not adequately planned. Leslie notes that many individuals may not have considered the financial implications of living into their 90s or even 100s. This risk underscores the importance of creating a retirement plan that accounts for a longer lifespan, ensuring that individuals have sufficient resources to maintain their desired lifestyle throughout their retirement years.
- Interest Rate Risk
Interest rate risk pertains to the impact of changing interest rates on investment returns and income. Leslie explains that low interest rates can significantly affect the income generated from savings and fixed-income investments, such as CDs and bonds. For instance, retirees who relied on interest income from their savings may find themselves struggling if rates are low. Conversely, rising interest rates can also lead to volatility in the stock market. Therefore, retirees must be aware of how interest rate fluctuations can affect their overall financial situation and plan accordingly.
- Long-Term Care Risk
Long-term care risk is the likelihood of needing assistance with daily activities as one ages. Leslie highlights that a significant percentage of individuals will require some form of long-term care, which can be financially devastating if not planned for. The costs associated with long-term care can quickly deplete retirement savings, making it crucial for individuals to consider insurance options or other strategies to cover these potential expenses. Leslie advises that whether through insurance or self-funding, it is essential to make provisions for long-term care to protect retirement assets.
Conclusion
Understanding these various risks—market, tax, longevity, interest rate, and long-term care—is crucial for effective retirement planning. By recognizing and addressing these risks, individuals can create a more resilient retirement strategy that safeguards their financial future. Engaging with a fiduciary advisor, like Leslie Hammock, can provide valuable insights and personalized strategies to navigate these complexities and to help provide a more confident retirement.
