Longevity Risk:
A successful planner makes sure that post retirement his client is left with adequate money to live rest of the life peacefully and income stream should be set in such a manner so that the money doesn’t get over till the life time. When you have planned for retirement, dying during the time of retirement is less risky than surviving longer. And this really magnifies our vision to understand how important longevity is for retirement planning. So when such plans are made the kitty should be higher than the required for the expected life. By this way planner can ensure that money doesn’t get over before the life of the client.
Inflation risk:
There is one more enemy of the retirement plans known as inflation. It normally arises when too much money chases few goods. It increases the future cost of the goods and reduces the purchasing power. While planning for retirement inflation estimates plays the vital role because wrong estimation of inflation leads to inferior life to the retired person. Challenge here for the planner is to develop a long-term vision on the inflation and constant revision of the plan based on the prevailing inflation.
Several other factors to be considered while choosing the inflation are:
Spending habits: Retiree buys more services and services cost more than goods
Medical inflation: Medical inflation is generally twice than national average
Regional variation: Plan to move to lower cost areas cause inflation is regional
Healthcare expenses are the biggest expense normally incurred by the retired people. The longer the life expectancy, the higher are the expenses. Hence one more challenge to the planner is to first of all classify routine and contingent healthcare expenses and providing for the both. So that such contingencies do not affect the overall living standard of the retired person.
