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Reinvent retirement your way. Create a solid plan to help make your income last.

We get it. You're ready to reinvent retirement. Maybe you'll teach. Or volunteer in your community. Or start that business you've always dreamed about. Before you can have the retirement you want, you need a plan to keep and grow your savings.

And before you can even create a plan, you'll need to know how the top retirement risks can eat into your lifetime savings. Stock market lows, inflation, outliving your assets and health-care costs can chip away at your retirement assets and your peace of mind. Don't let them. You simply need a strategy to make your retirement income last by managing the effects of outside risks on your assets. With an appropriate mix of investments, insurance, and guaranteed * income, which is available through certain annuity products, you and your retirement nest egg can be tailored to your individual goals and risk tolerance.

Do you expect to spend 20, or even 30, years or more in retirement? To help deal with the risk of outliving your assets, you may want to consider equity investments in your mix, so that a portion of your investments are always focused on growth potential over time. Of course, remember that equity investments are subject to market risk and may lose value.

One of the biggest risks in retirement is health-care costs. While you can't predict how much medical and long-term care you'll need as you age, you can be prepared by getting the right kind of insurance, so you don't have to dip into your savings to cover those costs.

What's the secret to staying ahead of stock market and inflation risks? Diversification, or a mix of investments, that can help add a measure of stability and growth to a portfolio.

It's all about thinking ahead, getting a plan and following the plan.

Stock market volatility risk

You may be saying, "I want to balance my portfolio by participating in the growth potential of the market and manage overall portfolio risk. How do I do that?"

No one can predict the stock market's ups and downs, so it's smart to have a mix of investments that is appropriate for you considering your risk tolerance, time horizon, long-term goals and other factors. Such a portfolio might include stocks and stock-oriented investments for growth potential, bonds and bond-oriented investments for income, and insurance and annuity products that can help guarantee* a steady income stream; and cash, so you have quick access to your money.

Different types of investments do not move in the same direction or at the same magnitude at the same time. By having many different types of investments in your portfolio, you increase the chances that some investments are performing well. It's all about diversifying your assets. In fact, about 90 percent of the variation in a portfolio's returns over time can be attributed to how investments are allocated, according to Ibbotson Associates, a Chicago-based market research firm. Keep in mind, though, that just diversifying your assets, known as "asset allocation," can't protect against loss in a down market. It's important to keep in mind that investments are subject to market fluctuation and may lose value.

Inflation risk

Twenty years ago if you paid $300 for groceries, those groceries would likely cost $558 today.¹ This is all because of inflation, which means your dollar doesn't go as far as it used to.

That's why it's important to consider growth investments that can help stay ahead of inflation, especially over the two decades or more you may spend in retirement. According to Ibbotson Associates, inflation has averaged about 3 percent a year historically.

Risk of outliving your assets

A 65-year-old man will live until age 82 and a 65-year-old woman until age 85, on average, according to a report on aging.² If you're 65 today, you could live about 20 years in retirement. The obvious danger is that you could outlive your retirement savings. No one wants that to happen.

Once again, the answer is to have a mix of investments and insurance that can help weather the ups and downs of the stock market during your retirement. And, as you age, you'll likely want more of your money invested in conservative investments, such as bonds and cash, to help preserve your nest egg.

You can add products such as annuities to your income sources. Annuities offer guaranteed *, regular income over a pre-set period of time. They give you monthly income that you can use to pay your bills in retirement.

*Guarantees are based on the claims paying ability of the issuing insurance company.

Annuities are tax-deferred, long-term planning vehicles ideally suited to retirement planning. Withdrawals from annuities prior to age 59½ are subject to a 10 percent tax penalty and withdrawals during the first several years are subject to surrender charges. Earnings, when withdrawn, are subject to ordinary income taxes. Note that tax-deferral offers no additional value if an annuity is used to fund a qualified plan, such as an IRA.

You'll also want to develop a sound withdrawal strategy for how much to take from your assets annually. That amount will be based on the amount of time you expect to be retired, the income you estimate you'll need to live the lifestyle you want, and how much you think you'll have over time. It's a good idea to seek advice from advisors who can help develop an asset draw-down strategy that works for you.

Risk of health-care costs

We all want to age gracefully, but some of us will need a little help along the way. You may need long-term care and medical assistance as you age.

It's important to plan for medical costs so that you won't be forced to work longer than you want to. The amount of after-tax income a typical older married couple will devote to health care may increase from 16 percent in 2000 to 35 percent in 2030³. That's the year that the youngest Baby Boomers will be eligible for Medicare.

When it comes to help with medical care from the government, keep in mind that Medicare may not cover all of your health care costs. You will still have to pay premiums and deductibles for that coverage. And, Medicaid only covers health care for the poor. Medigap insurance helps cover premiums for Medicare deductibles.

Many individuals will need some type of long-term care during their retirement years. That's why it's important to consider getting a policy to cover nursing-home or in-home care today. The amount you pay for a policy depends on your age, the amount of daily coverage you want and the length of time until the benefits may begin.

Just plan ahead to get the medical and long-term care insurance that you need, so that you're not funding these costs from your retirement income.

A solid plan can help give you peace of mind

No matter what the retirement risks, as long as you think about your sources of income and put good strategies in place to lower the effect that those risks may have on your nest egg, you'll have more peace of mind knowing that you've taken steps to plan for your retirement.

1. U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index Inflation Calculator.
2. As quoted from the 2005 OASDI Trustee's Report in the Employee Benefits Research Institute's 2006 Retirement Confidence Survey.
3. "Will health care costs erode retirement security?" by Richard W. Johnson and Rudolf Penner. ©2000 by the Trustees of Boston College, Center for Retirement Research. All rights reserved.

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