Protecting Your Retirement Nest Egg

As retirement approaches, protecting your nest egg becomes crucially important. And, like anything else in life, thinking ahead pays off. Here are three important trends to consider as you plan:

  • Healthcare costs are increasing faster than the rate of inflation.  Fidelity’s latest estimate shows a 65-year-old couple retiring in 2013 will need an estimated $220,000 to cover retirement healthcare costs. That figure does not include long-term-care expenses. If you are still working and your employer offers a health savings account (HSA), you may want to take advantage of it. An HSA offers a triple-tax advantage: you save pretax dollars, which grow tax-deferred and can be withdrawn tax free for qualified medical expenses. You should also investigate long-term care insurance.
  • Today’s healthy 65-year-olds likely will live into their 80s or 90s. This means there’s a strong possibility that you may need to support yourself for 30 or more years in retirement. That’s all the more reason to max out your 401(k) contributions. Also, if you are over age 50 you can use the catch-up provision to contribute an extra $5,550 to your 401(k) and $1,000 to your IRA in 2014.
  • Even relatively low inflation can chip away at your purchasing power. $50,000 today will be worth only $30,477 in 25 years, even with just a 2% inflation rate. Because many fixed income investments will not keep pace with inflation, investing part of your portfolio in inflation-fighting investments, such as stocks or stock mutual funds, may make sense.

You’ve spent years building your nest egg, so take the necessary steps to protect your retirement income stream.

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