How to Protect Your Assets and Retirement Savings

Transitioning into retirement sometimes leads to worries about maintaining your standard of living and concerns about fraud and financial exploitation. The strategies to protect your income and assets should be implemented long before you retire. Common ones involve Social Security, employer-sponsored plans, long-term care insurance, and annuities.

Reports indicate that 70 percent of people claim Social Security before age 64, receiving what is referred to as reduced benefits. The full benefit eligibility age in the United States is 66 years and two months for people born in 1955. The eligibility age is 67 for those born in 1960 or later. However, you can claim benefits as early as 62, though you will be penalized. If you wait until 70, you get 76 percent more benefits than opting out earlier. It offers a feasible way to access extra Social Security funds, boosting your retirement funds.

Purchasing an annuity ensures a steady and guaranteed stream of income. An annuity is an agreement or contract with an insurance company in which you pay a lump sum or premiums, and the insurance company pays you the invested funds, with interest, as a fixed income stream at a future date. The premiums are paid after retirement for as long as you live, providing a steady and assured retirement income.

The annuity also has allocations to protect assets, though the extent of the protection depends on state law. Some protect the cash surrender value, the amount you receive when you cancel the annuity before it matures. Others protect any returns from the annuity from garnishment.

Garnishment refers to a court order in which a third party, such as an employer or bank, is ordered to direct money owed to you to your creditors. Other forms of protection of assets extend only to the amount necessary for your support.

One common situation that erodes retirement savings is unexpected costs from age-related health conditions that require long-term care and sustained treatment. Medicare or other health insurance policies rarely cover long-term care. Long-term care insurance helps alleviate these financial strains.

First, you can self-insure by setting aside and investing money to handle unexpected expenses, including health, after retirement. However, self-insurance comes with the risk of underperforming investments or health conditions costing more than savings. Second, you can purchase a long-term care insurance policy. This option often ensures access to treatment and offers payment as a lump sum or in installments.

One of the risks your retirement income faces is inflation. It significantly erodes the savings and the value of assets by reducing the purchasing power of money. Consider the future value of your retirement plan, and integrate compensation measures. Social security has a cost of living adjustment benefit that adjusts the value of the benefits according to inflation.

You can further protect yourself by opting for an inflation-protected annuity (IPA), which assures you of a return above or at the inflation rate at the time of annuity maturity. Though IPAs provide a slightly lower return than other annuities, you are at least assured your retirement income is protected from inflation.

You can also protect your retirement income by choosing investments that adjust with inflation. The common types include growth-oriented investments like treasury inflation-protected securities(TIPS). These are government-issued securities designed to protect investors from the adverse effects of inflation. Also, consider dividend-paying stocks and commodities like gold, which grow in value with time.

Gerard Dougherty

Shop