Retirement challenges: Inflation, state of economy, health care are top concerns, CNBC survey finds

Several key challenges facing retirees are revealed in the CNBC survey. Inflation emerges as the most widespread concern, with an overwhelming 86% of respondents citing it as a major worry. The erosion of purchasing power due to rising prices can have a profound effect on fixed incomes, making it crucial for retirees to have strategies in place to combat this persistent threat.

Following closely behind inflation, apprehension about the state of the U.S. economy was express by 82% of those surveyed. Economic uncertainties can impact investment returns, job prospects for those planning to work in retirement as well as overall financial stability, underscoring the need for robust, adaptable retirement plans.

Health care costs rank as the third most significant concern, with 76% of respondents highlighting this as a major issue. The unpredictable nature of health care expenses, coupled with the likelihood of increased medical needs in later years, makes this a critical factor in retirement planning. However, one in three (31%) retirees cite declining health or illness as their biggest worry during retirement.

Market volatility is another key worry, cited by 74% of those surveyed. The potential for significant swings in investment values can be particularly stressful for retirees who rely on their portfolios for income, emphasizing the importance of risk management strategies in retirement planning.

Rounding out the top concerns, 66% of respondents worry about outliving their savings. This fear of longevity risk reflects the challenges of planning for an uncertain lifespan and highlights the value of guaranteed income streams and careful long-term financial planning.

The survey also indicates that more workers expect to care for family members in retirement than initially anticipated. Planning for potential caregiving duties, both financially and logistically, is an important aspect of holistic retirement planning.

Indeed, in today's uncertain economic climate, retirement income planning has become more critical than ever. With factors such as inflation, market volatility and increasing life expectancies, it's essential for individuals to develop a personalized strategy to help ensure financial security throughout their retirement years.

One of the most pressing questions for those approaching retirement is determining how much savings they'll need to maintain their desired lifestyle. The survey reveals a concerning statistic: One in five (21%) retirees have no retirement savings at all, while 15% have less than $50,000 saved. This underscores the critical importance of early and consistent retirement planning.

To estimate your retirement needs, financial experts often recommend aiming for 70-80% of your pre-retirement income. However, this figure can vary based on individual circumstances, such as expected lifestyle changes, health care costs and inflation. It's crucial to conduct a thorough analysis of your anticipated expenses in retirement, including:

• Essential living costs (housing, food, utilities).
• Health care and long-term care expenses.
• Discretionary spending (travel, hobbies, entertainment).
• Potential caregiving responsibilities for family members.

The survey indicates that 56% of retirees are concerned about their savings lasting throughout retirement. This highlights the need for a comprehensive retirement income plan that addresses both immediate and long-term financial needs.

Developing an effective retirement income strategy involves balancing various income sources and investment approaches to create a stable and sustainable financial foundation. Here are some key strategies to consider.

Diversification of income sources

The survey reveals that while nearly all retirees depend on Social Security payments, higher savers also supplement their income with passive income sources, savings and retirement plans. A diversified income approach might include:

• Social Security benefits
• Pension payments (if applicable)
• Annuities
• Withdrawls from retirement accounts - 401(k)s, IRAs
• Passive income from investments (dividends, interest)
• Rental income from real estate
• Part-time work or consulting (28% of retirees work to supplement their income, the survey found)

Guaranteed income streams

Given the concern about savings longevity, incorporating guaranteed income sources can provide peace of mind and financial stability. Fixed and indexed annuities are powerful tools in this regard, offering:

• Predictable, guaranteed income for life.
• Protection against market downturns.
• Potential for growth tied to market performance (for indexed annuities).
• Tax-deferred growth.

The bucket strategy

This approach involves dividing your retirement assets into three categories:

• Short-term bucket. Cash and cash equivalents for immediate needs (one to two years).
• Mid-term bucket. Conservative investments for expenses in the next three to 10 years.
• Long-term bucket. Growth-oriented investments for needs beyond 10 years.

This strategy helps balance the need for immediate income with long-term growth potential while managing market risk exposure.

Dynamic withdrawal strategies

Rather than adhering to a fixed withdrawal rate, consider adjusting your withdrawals based on market performance and personal circumstances. This flexibility can help preserve your nest egg during market downturns and potentially allow for increased spending during favorable conditions.

Market volatility is a significant concern for retirees, as it can erode savings and disrupt income plans. The survey indicates that 86% of retirees say inflation has impacted their retirement savings, with 52% reporting a significant impact. To mitigate the risks associated with market volatility and economic uncertainties in retirement, several effective strategies can be employed. One key approach is maintaining a well-diversified asset allocation that balances growth potential with stability.

As you approach and enter retirement, it's usually advisable to gradually shift toward a more conservative allocation to reduce your exposure to market risk. Another valuable strategy involves incorporating buffer assets, such as low-volatility investments like short-term bonds or cash equivalents, which can provide a crucial cushion during market downturns and help you avoid selling assets at depressed prices to meet your income needs.

Guaranteed income products, particularly fixed and indexed annuities, can play a pivotal role in protecting your retirement savings from market volatility. These products offer several benefits, including principal protection, guaranteed income regardless of market performance, and, in the case of indexed annuities, the potential for growth linked to market indices without direct market exposure. Another effective strategy to consider is creating a laddered bond portfolio by purchasing bonds with staggered maturity dates. This approach provides regular income while helping to manage interest rate risk, offering a balanced way to generate steady cash flow throughout your retirement years.

By implementing these risk mitigation strategies alongside the income diversification and bucket approach discussed earlier, you can create a robust retirement plan that's better equipped to weather market fluctuations and economic uncertainties. This comprehensive approach not only helps protect your hard-earned savings but also ensures a more stable and predictable income stream throughout your retirement, allowing you to enjoy your golden years with greater financial peace of mind.

A diversified portfolio of investments that balances growth potential with income generation is often the most prudent approach. Selecting the best investments for retirement income is crucial for maintaining financial stability throughout your golden years, and circumstances are different for every individual, but consider a mix of the following as among your options:

• Dividend-paying stocks. Blue-chip companies with a history of consistent dividend payments can provide a steady income stream and potential for capital appreciation.
• Bonds. Government and high-quality corporate bonds offer reliable income with lower risk compared to stocks. Consider a mix of Treasury, municipal and corporate bonds based on your risk tolerance and tax situation.
• Real estate investment trusts (REITs). REITs can provide regular income through property investments without the hassle of direct property management.
• Annuities. Fixed and indexed annuities offer guaranteed income for life, helping to mitigate longevity risk and market volatility concerns.
• Exchange-traded funds (ETFs) and mutual funds. These investment vehicles provide diversification and professional management, allowing you to target specific sectors or investment strategies.

When selecting investments for retirement income, it's essential to consider factors such as risk tolerance, income needs and overall financial goals.

Social Security remains a cornerstone of retirement income, with a recent survey finding that 80% of retirees rely on these payments. Given its importance, maximizing your Social Security benefits can significantly impact your overall retirement income. One key strategy to consider is delaying your claim for benefits. While you can start claiming as early as age 62, waiting until your full retirement age (which is between 66 and 67 for most current retirees) or even up to age 70 can result in substantially higher monthly benefits. For married couples, coordinating spousal benefits can be an effective way to maximize combined benefits. This might involve one spouse claiming early while the other delays their claim.

If you're planning to work during retirement, it's important to be aware of how this might affect your Social Security benefits. If you claim benefits before your full retirement age and continue working, you should be mindful of the earnings test, which may temporarily reduce your benefits. Additionally, strategically managing your other income sources can help minimize the taxation of your Social Security benefits, potentially increasing your overall retirement income.

By carefully considering these strategies and integrating them into your overall retirement plan, you can potentially boost your Social Security benefits and strengthen your financial foundation for retirement. Remember, the best approach will depend on your individual circumstances, so it's advisable to consult with a financial professional or Social Security specialist to determine the optimal strategy for your situation.

Creating a secure and fulfilling retirement requires careful planning and a holistic approach that addresses both financial and lifestyle considerations. By implementing strategies to reduce market risk and secure guaranteed income streams, you can work toward a retirement that not only meets but exceeds your expectations.

Remember that retirement planning is an ongoing process, and it's never too early to start. Consider working with a financial professional who focuses on retirement income planning to develop a personalized strategy that aligns with your unique goals and circumstances. With careful planning and a comprehensive approach, you can navigate the challenges of retirement and enjoy the financial security and peace of mind you deserve in your golden years.