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Understanding Retirement Risk Factors

Retirement represents the phase of life when you should be able to finally realize the goals and dreams you’ve worked so hard to achieve. However, a quarter of Americans (25%) view work as something they will have to do until they are at least 80 because they do not have enough savings to live comfortably in retirement.1
Understanding the risk factors that can come between you and your ability to retire how and when you want is an important step in helping to ensure you will have the income you need to meet your goals throughout retirement.
Ensuring your assets last throughout retirement requires careful planning now to determine how inflation, rising health care costs, nursing home care and other key factors may affect your income over time.
Risk Factor: Longevity
While none of us can predict how long we’ll live, individuals at age 65 have a high probability of spending 20 years or more in retirement.2 Steadily rising health care costs number among the many risks retired Americans face as we live longer lives.
  • As life spans increase, many people may spend more time in retirement than they spent working.
Risk Factor: Inflation
The longer your time in retirement, the greater the potential that inflation may erode your savings and impact your lifestyle. This makes it important for you to develop an income strategy to help outpace inflation and keep up with the increasing cost of goods and services. Consider this:
  • A loaf of bread cost $0.68 in 1990; in 2011 the same loaf of bread cost $1.42. That’s an increase of 109% in 21 years.3
  • A gallon of gasoline that cost $1.02 in 1990, cost $3.55 per gallon in 2011 – representing a 248% increase.3
Risk Factor: Market volatility
Today’s financial markets have become increasingly volatile and complex, leaving many people wondering when they will be able to retire and how long their retirement assets will last.
  • A sudden market downturn can have a significant impact to investors who aren’t well-diversified or those who don’t have the time-frame to wait out a market recovery.
  • When creating your retirement plan, consider the impact a volatile market could have on your retirement assets. You may be in retirement for 20 or 30 years and the market could fluctuate dramatically during that time.
Risk Factor: Withdrawal strategy
Your withdrawal strategy – the rate at which you draw down savings and investment assets to pay for current living expenses in retirement – plays a critical role in determining how long your income will last. For most individuals, an essential part of retirement income planning is determining an appropriate withdrawal or spending strategy.
  • What is the appropriate withdrawal rate for you — 3%? 4%? 5%? 6%?
  • By establishing a withdrawal rate that’s too high, you could potentially outlive your savings.
  • By withdrawing at a rate lower than necessary, you could be leaving money on the table or unnecessarily curtailing spending for food, medical care, housing or travel.
Steps You Can Take Now to Help Minimize Retirement Risk Factors
Develop a Plan
Whether you’re in or nearing retirement, developing a plan to help ensure you will have income throughout your life is critical. Two or three decades without a steady paycheck from an employer means that you must make the assets you’ve saved — along with Social Security and any pensions you may have — create the income you need through retirement.
Achieving the right balance to ensure your income needs are met throughout retirement requires a comprehensive retirement income plan that addresses:
  • Guaranteed income to pay for current living expenses and ensure you do not outlive your assets over time
  • An asset allocation and diversification strategy designed to obtain growth to outpace inflation
  • How you will protect your assets from the impact of market volatility
  • Alignment between your withdrawal strategy, budget, spending needs, lifestyle goals and priorities
Diversify Your Retirement
How you allocate your assets across various asset classes during the retirement accumulation phase can have a profound impact on the savings you have upon entering retirement. However, once in retirement, your focus will need to include an allocation designed to meet specific income objectives, including guaranteed income, asset protection (stable) and growth. To help meet these objectives, consider these three important elements of a retirement income strategy:

Objective: to provide guaranteed income to help protect against outliving your assets. (pensions, insurance and annuities)

Objective: to provide stable income with principal preservation to help protect against market volatility. (bond and fixed income investments)

Objective: to provide a combination of growth and income to help off-set inflation. (stocks and equity income investments)
Consider Working with a Financial Advisor
Developing your retirement income strategy can be complex. Determining the optimal balance for you across guaranteed, stable and growth strategies requires experience and deep knowledge of the financial markets.
A financial advisor can help you create an income stream designed to support your lifestyle in retirement. You can evaluate different retirement income scenarios and potential tradeoffs. Together, you and your advisor can determine a retirement income strategy that fits your needs and takes longevity, inflation, market volatility and your withdrawal needs into consideration.
Review Your Plan Regularly
As your circumstances, goals and the financial markets change, it’s important to review your strategy and investment portfolio to ensure you remain on track toward your goals. Successful retirement planning begins with understanding and that’s where Wells Fargo can help. To get started, call a Wells Fargo Retirement Professional today.
Successful retirement planning begins with understanding and that’s where Wells Fargo can help. To get started, call a Wells Fargo Retirement Professional today.
Wells Fargo Retirement Professionals1-877-493-4727
*Withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59½.
Please Note: Traditional IRA distributions are taxed as ordinary income. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59 ½ or meet other requirements. Both may be subject to a 10% Federal tax penalty if distributions are taken prior to age 59½.
Investment and Insurance Products: Are Not insured by the FDIC or any other federal government agency - Are Not deposits of or guaranteed by the Bank or any Bank Affiliate - May Lose Value
1 2011 Wells Fargo Retirement Study
2 Source: Social Security Administration, Actuarial Study Number 120, Table 10, Life Tables for the United States Department of The Treasury, Internal Revenue Service; Publication 590: Individual Retirement Arrangements (IRAs) For Use in Preparing 2011 Returns, pp. 86-87, Single Life Expectancy Table.
3 Source: March 1990 and 2011,
This material has been prepared solely for informational purposes. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.
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Retirement Professionals are registered representatives of Wells Fargo Advisors, LLC (Member SIPC), a registered broker-dealer and separate non-bank affiliate of Wells Fargo & Company. Discussions with Retirement Professionals may lead to a referral to Wells Fargo Advisors’ affiliates including Wells Fargo Bank, N.A. Wells Fargo Advisors and its associates may receive a financial or other benefit for this referral. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.
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