There are many types of risks when planning for retirement that a lot of people don't consider. Longevity risk is one of those risks and Jaime Hopkins, Forbes Contributor, Associate Professor of Taxation at the American College and Associate Director at the New York Life Center for Retirement Income, says that perhaps most people aren't as concerned about that as they should be. With one in four people living past the age of 90, most people don't plan for that because they don't know how to plan for an unexpected time frame, not knowing how long they're going to live.
Inflation risk and excess withdrawal risk are two other big risk factors when planning for retirement. Long-term care risk is one that we haven't really found a solution for yet, says Hopkins, with long-term care insurance having a low penetration in the market with only about 6-7% of people having this type of insurance.
Hopkins says that having a "plan B" is important, not just for these risks but also for when you're going to retire. He says that about 40% of people retire earlier than expected, 45% retire on time and about 10% retire after they plan, which indicates that a second plan needs to be in place. Sometimes that plan B can be a contingency plan where money is put aside for a specific risk and sometimes, other risks can be exacerbated. If money is set aside in a liquid form, it may not be generating high returns, thus reducing the returns on an overall portfolio. By keeping large amounts of cash on hand, it can make retirees targets for financial elder abuse.
"Fixing one risk doesn't necessarily mean we're better off and we might have exacerbated another risk if we didn't plan about it carefully," Hopkins says.
Jaime Hopkins, Forbes Contributor, Associate Professor of Taxation at the American College and Associate Director at the New York Life Center for Retirement Income, spoke with Retirement News Today during this interview, providing online retirement news video content. Retirement News Today is a featured network of Sequence Media Group.