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6 steps to beat retirement risk

By Jennie L. Phipps · Bankrate.com
Sunday, October 28, 2012
Posted: 6 am ET

Risk management is a hot topic in big business, with companies spending huge bucks to figure out how to juggle operations, investments, taxes and regulation in an uncertain environment.

When you think about it, those of us who are managing our retirement planning probably face many of the same issues, and we could benefit from adopting some of the same approaches.

In a white paper on risk management, accounting and management consulting firm PriceWaterhouseCoopers offers its corporate clients clear-cut advice about controlling risk. Merrill Lynch, in its recently released Affluent Insights Survey, takes a remarkably similar approach for those of us whose operations aren't on a multimillion-dollar scale. Here's some retirement risk management advice harvested from both of these sources.

Recognize the risks. "The first thing that comes to mind is the longevity risk," says Bill Hunter, a Chartered Financial Analyst and director of personal retirement solutions for Bank of America Merrill Lynch. "You may live 20 or 30 years into retirement. You have to be prepared to deal with the uncertainty that raises, especially against the economic backdrop of the last 10 or 20 years."

Have a plan. "What you can control are your own behavior and choices. Be personally accountable for managing your life and trying to achieve the retirement that you want," Hunter says.

Set priorities. You may not be able to do everything. For instance, if you choose to pay for your children's college educations, leaving them with an inheritance may be out of reach. "Focus on what your goals are and what risks you associate with each. You have a choice," Hunter says.

Don't ignore obvious opportunities. Getting the full 401(k) match from your employer is the obvious first step. Saving at least 10 percent of your salary is the second.

Understand the trade-offs. You can choose to take Social Security at 62, and you'll get the money sooner, but if you live to be 80, actuarial calculations of Social Security show you'll come out ahead by waiting to age 66 to claim.

Take a chance. If you're too conservative -- in your investments or in your game plan -- you'll be a loser. Or as PwC advises, "Choose the best risks and manage them properly, so you can capitalize on the opportunities they offer."

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1 Comment
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