A big part of being financially fit is managing risk.
For example, to manage the risk that we die prematurely, we get life insurance. To manage the risk that one company will go out of business, we invest in a diversified portfolio.
Risks will always be present but how we manage these risks will determine how prepared we are for the future.
Here are some of the big risks that FERS (Federal Employees Retirement System) federal employees face in retirement.
We all have heard the stories of when you could get a gallon of gas for less than 25 cents, but thanks to inflation, those days are long over.
Inflation risk is the risk that the price of goods and services rises quicker than your income or investments. Over the course of 20 years, it is not unlikely that the price of things will double.
This is why it is so important that our investments grow over time, even in retirement. Some people think they should be 100% G fund once they retire, but I have never seen this to be appropriate. The G fund is very safe but will do little to stop inflation from lowering your standard of living over time.
Unexpected Health Problems/Dependence
Good health is often key to a great retirement. Unfortunately, the cost of health care is rising at an incredibly fast rate. Many FEHB plans help cover many of these costs, but it is essential that retirees make sure they have the coverage they need if anything serious happens.
In some cases, it makes sense to have both FEHB and Medicare part B to fill in some of the gaps.
Another concern that retirees have is the loss of independence, and with the cost of nursing homes rising as well, retirees will want to make sure they have a plan to pay for this coverage if needed.
Some people have children or other family members that are in the position to provide care if something happened, but some do not. Regardless of your situation, it is important to think through how you’d handle that situation.
This risk is the risk of living longer than expected. On one hand, we all want to live a long happy life. On the other hand, we don’t want to outlive our money.
Modern medicine allows us to live longer than ever before, but we want to make sure we are financially prepared to live a long time so we can live those extra years on our own terms.
On a happier note, retirement can be an incredible time full of great experiences and memories. In my experience, those that are able to plan for the risks of retirement the best are those that are able to enjoy retirement the most without worry.