Five often-overlooked threats to a successful retirement

Learn what challenges you might face, take steps to overcome them

With life expectancies on the rise, it's possible that your time spent in retirement could last as long as your career, or possibly longer. Careful retirement planning may be crucial to achieving-and maintaining-the retirement lifestyle you've been envisioning.

Knowing what challenges you might face as you prepare for and transition into retirement can go a long way toward helping you achieve your retirement goals. With that thought in mind, let's briefly explore five often-overlooked challenges that could impact your retirement.

Challenge 1: Improper asset allocation

One of the biggest retirement challenges is also one which you have plenty of control over: An improper asset allocation.

On the one hand, there's the risk of positioning a portfolio too conservatively. Avoiding market risk could temper any real returns your portfolio might generate. As a result, you may be forced to draw on more of your principal balance than you originally planned for. Conversely, there is also the risk of being too aggressive with your positioning, putting at risk capital that you may need to draw upon in the nearer term.

Challenge 2: Higher interest rates

At some point in the future, interest rates may begin to climb from their current record lows. So how might this affect your portfolio? Following the financial crisis of 2008, investors flocked to fixed-income holdings-like bonds-as a means to attempt to avoid the financial uncertainty associated with the recession.

When interest rates rise, bonds as a whole tend to underperform stocks. A portfolio geared toward capital preservation and heavily weighted in the bond market might not be able to generate the returns necessary to fund your retirement lifestyle.

Challenge 3: Inflation

Inflation-defined as a decrease in purchasing power- is of particular concern to investors taking a long-term view of their goals for retirement.

Given the average annual inflation rate of 3.22%, it would only take roughly 20 years for consumer prices to double1. This means you'll have to account for inflation when building your retirement portfolio.

Challenge 4: Rising healthcare costs

As it stands now, healthcare costs continue to rise. Compounding the issue, the future of Medicare and Medicaid remain in question as the government struggles to rein in costs.

What's not in question, however, is the fact that you'll likely need to account for rising healthcare costs as you're planning for retirement by setting aside more money for future medical care. Otherwise, an untimely illness or accident could take a major bite out of your retirement assets.

Challenge 5: Market risk

The 2008 financial crisis and the resulting drop in the housing market should serve as a clear and present reminder as to the impact that market volatility can have on your portfolio.

But in case the sting of that lesson is starting to fade, consider this: Every 30-year period since 1950 has included at least one bear market2. This becomes especially important when you consider the fact that recovering from market losses can be more difficult for those who are withdrawing money from their portfolios.

Now for the good news

So what can you do to help limit your exposure to these challenges? Typically, it's best to focus on factors you have direct control over. Start by determining your goals, tolerance for risk, expected liabilities and cash inflows, as well as your own personal time horizon. This can go a long way toward helping you make financial decisions appropriate to your personal situation.

Contact me today. I can help you define your goals and provide you with guidance as you work toward the retirement lifestyle you're envisioning.

1. U.S. Department of Labor, Bureau of Labor Statistics, Washington DC 2013.
2. Bear market defined as a market drop of 20% or greater.