How to defuse the 5 scariest retirement threats
— -- With stocks sagging, home prices tumbling and food and gas prices robbing people's budgets, these are nerve-jangling days for consumers. Especially if you're retired. Wasn't retirement supposed to be the time to finally relax?
Don't despair. You can blunt most threats to your retirement with smart investing, shrewd planning and old-fashioned thrift.
Here are five of the biggest threats to your retirement. Then take action. The cures are less painful than you might think.
THREAT: Inflation
When money buys less each year, thanks to rising prices, you have to withdraw more and more from your retirement account. Eventually, you could run out of money sooner than you expect.
The consumer price index, the government's gauge of inflation, rose 3.9% for the 12 months that ended in April. But to many people, the real rate of inflation is far higher. Sharp increases in food (5%), health care (4.8%) and energy (15.9%) have battered retirees, particularly those with little income.
Even low inflation hurts retirees, because of its cumulative impact. Say you withdraw $1,000 a month for expenses. After 10 years of 3% inflation, your monthly $1,000 withdrawal would command the buying power of only $760 — a 24% plunge.
The cure:
Inflation-fighting investments
Inflation hits dollar-denominated paper assets, such as U.S. stocks and bonds, hardest. To help beat inflation, you can put some money in hard assets or foreign investments.
Take gold, for example. Gold retains its value when paper currency doesn't. Consider StreetTracks Gold Shares, an exchange-traded mutual fund that invests in gold bullion and trades under the ticker GLD.
Another option: Treasury Inflation-Protected Securities, or TIPS. These are federally backed bonds whose value rises according to inflation. Buy TIPS from the Treasury, at treasurydirect.com, or via TIPS mutual funds. Vanguard Inflation-Protected Securities fund (VIPSX) charges rock-bottom expenses.
THREAT: Not saving enough
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