Four Ways to Protect Your Retirement Income

Are you doing enough to protect what you’ve saved?

Here are four rules of thumb to help manage the risks to your retirement income.

1. Be Prepared for Inflation

Inflation can eat away at the purchasing power of your money over time. This affects your retirement income by increasing the future costs of goods and services, thereby reducing the purchasing power of your income. Even a relatively low inflation rate can have a significant impact on your purchasing power in retirement.

What to consider:

While many fixed income investments and retirement income sources will not keep pace with inflation, some sources, such as your Social Security benefit and UCRP pension (if eligible), may help you contend with inflation automatically through annual cost-of-living adjustments or market-related performance. Investing in inflation-fighting securities, such as the UC Treasury Inflation-Protected Securities (TIPS) Fund or the UC Short Term TIPS Fund, may make sense.

The danger of inflation

2. Plan for Health Care Costs

With longer life spans, medical costs that are rising faster than general inflation and possible funding shortfalls ahead for Medicare and Medicaid, managing health care costs can be a critical challenge for retirees. Estimates of what you’ll need to cover your medical expenses during retirement vary, but most sources agree that the amount can be in the six-figure range.1 And that doesn’t include long-term-care expenses. According to the U.S. Department of Health and Human Services, more than half of those aged 65 and older will require some type of long-term care services—at home, in an assisted living facility, or in a traditional nursing home.2 The average private-pay cost of semi-private room in a nursing home is close to $90,000 per year according to Genworth, and exceeds $100,000 in some states. Assisted-living facilities average $4,000 per month. Home care agency rates average $138 per day for Home Health Aide services.3

What to consider:

If you are still working, explore UC’s Blue Shield Health Savings Plan, which combines a PPO plan for medical coverage with a Health Savings Account (HSA) to pay out-of-pocket expenses. An HSA offers a triple-tax advantage: you can save pretax dollars, which can grow and be withdrawn free of state and federal taxes if used for qualified medical expenses—currently or in retirement. In addition, HSA funds may be used to pay long term care insurance premiums. The cost of long term care insurance is based on age, so the earlier you purchase a policy, the lower the annual premiums.

3. Expect to Live Longer

As medical advances continue, it's quite likely that today’s healthy 65-year-olds will live well into their 80s or even 90s. This means there's a real possibility that you may need 30 or more years of retirement income.

According to data compiled by the Social Security Administration, an American man who’s reached age 65 in good health today can expect to live, on average, until age 84. A woman turning age 65 today can expect to live, on average, until age 87. And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.4

What to consider:

You may be eligible to receive a UC contribution towards the monthly cost of medical and dental coverage if you elect monthly retirement income from the UC Retirement Plan and meet certain UC service credit requirements.

4. Position Investments for Growth

An investment strategy that’s too conservative can be just as dangerous as one that’s too aggressive. It exposes your portfolio to the erosive effects of inflation, limits the long-term upside potential that diversified stock investments can offer, and can diminish how long your money may last.

On the other hand, being too aggressive can mean undue risk in down or volatile markets. A strategy that seeks to keep the growth potential for your investments without too much risk may be the answer.

What to consider:

Get help creating an appropriate investment strategy that works for you from a Fidelity Retirement Planner. A diversified portfolio that includes a mix of stocks, bonds, and short-term investments may help you seek the growth you need without taking on more risk than you are comfortable with. Remember that diversification and asset allocation do not ensure a profit or guarantee against loss.

1 "How to plan for rising health care costs," Fidelity Viewpoints, April 18, 2018. 
2 U.S. Department of Health and Human Services, 2015, Rev. 2016, "Long-term Services and Supports for Older Americans: Risks and Financing Research Brief"
3 Genworth 2018 Cost of Care Survey, conducted by CareScout®, April 2018
Social Security Administration Life Expectancy Calculators, Figures assume a person is in good health.

This information is intended to be educational and is not tailored to the investment needs of any specific investor. 

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