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4 Ways to Protect Your Retirement

Enjoying a comfortable retirement begins with having a strategic plan for saving and investing. Part of that means being sensitive to certain financial pitfalls that can derail your long-term goals and shrink your nest egg in the process.

Things like rising health care costs, inflation, high investment fees and financially-dependent adult children can pose a significant threat to your retirement outlook. While there's not much you can do about the cost of prescription drugs or the inflation rate, you do have the power to plan for how these potential roadblocks affect your retirement.

Here are some pointers for deflecting the impact of financial bombshells so you're not left feeling shortchanged in later years.

Factor future inflation into your current savings strategy. Inflation is an often-overlooked threat to retirement security but it can be one of the most damaging over time, particularly if your returns aren't keeping pace with an uptick in prices.

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[See: 10 Tips for Couples and Young Families to Build Wealth.]

According to research from the LIMRA Secure Retirement Institute, an inflation rate of just 2 percent can erode earnings by more than $73,000 over a 20-year period. The drain on retirement income becomes even more noticeable as inflation climbs.

Michael Fertig, a vice president and financial advisor at Fragasso Financial Advisors in Pittsburgh, says the most important thing investors can do to plan ahead for inflation is be realistic in their projections.

"Too many people make the mistake of thinking that low inflation is going to continue into the future," Fertig says. "It won't. Inflation has averaged between 3 and 4 percent over the last century and it will average in that range again. We won't see 1 percent inflation long-term and anyone who doesn't account for at least a 3 percent inflation rate will be in trouble 10 and 20 years into retirement."

Use a multi-pronged approach for dealing with medical costs. As you get older, a decline in health is natural but it can be devastating to your retirement savings.

Fidelity's 2015 Retirement Health Care Cost Estimate shows that a 65-year-old couple can expect to spend $245,000 on health care in retirement. That's a frightening number, but what's even scarier is that figure doesn't include the cost of long-term care in a nursing home.

Keeping health care from putting an unnecessary strain on your retirement income requires doing more than just signing up for Medicare at age 65. The best course of action, recommends Stephanie Genkin, a certified financial planner in New York, is to start prepping for those costs long before you get sick.

"Retirement savers who are in good health should consider a health savings account if they have a high deductible health insurance plan," Genkin says. "You essentially get a triple tax benefit -- you deduct annual contributions from your taxes now, invest the money so it grows tax-free for decades and use the funds for medical expenses in retirement, without paying taxes on the gain."

Patricia Cathey, an investment advisor representative and founder of Smart Retirement in Denver, says delaying retirement to stay on your employer's health care plan longer is also something to consider. Cathey recommends seniors enrolled in Medicare look into Medigap policies to pick up the tab for medical expenses once their Medicare coverage is exhausted.

Long-term care insurance is another option for preserving your retirement savings but coverage often entails a high premium. There's also the possibility that you pay for the policy but stay healthy and never need to use it. A hybrid policy that combines long-term care insurance and life insurance is a good way to hedge your bets, says Emory Smith, founder of EJS Financial Management in Phoenix.

[See: The Perfect 10 Shares.]

"If a client never needs the long-term care benefit, they can enjoy tax-free income in the form of withdrawals from the policy's cash value," Smith says. "The death benefit portion of the policy provides for their heirs. Unlike traditional long-term care policies, these hybrid contracts aren't use-it-or-lose-it. One way or another, the policyholder receives a benefit, either during life or at death."

Know what you're paying for. Fees can undercut the value of your investments if you're not paying attention. It's to your advantage to understand how much your portfolio's costing you. David Walters, a certified financial planner with Palisades Hudson Financial Group's Portland, Oregon office cautions that high fees are a real danger even when they sound deceptively small.

"The difference between a 0.5 percent fee and a 1.5 percent fee can add up substantially over the course of your working life, potentially creating hundreds of thousands of dollars in lost savings and retirement growth," Walters says. "Consider this: every dollar you pay in fees is a dollar that can't earn returns in years to come."

Fertig offers an example of how much of a bite fees can take out of investments over time. If you have two identical $1 million portfolios and invested them the same way, earning a 7 percent return for 20 years, the portfolio that had the additional 1 percent cost in fees would have a final value of $2.7 million. The one without the higher fee would be worth $3.3 million.

That's $600,000 in retirement income the first investor has sacrificed to fees. That, Fertig says, is why it's so important for investors to understand what they're buying and what the internal costs are for those investments.

Create an exit strategy for supporting adult children. Faced with high student loan debt and a tight job market, millennials are increasingly turning to mom and dad for financial help when the going gets tough. Data from the Pew Research Center shows that 42.8 percent of men and 36.4 percent of women aged 18 to 34 lived with their parents in 2014.

When boomerang kids move back home or adult kids are living on their own but can't seem to get their finances together, many parents see their retirement plans go out the window. Jody Dietel, chief compliance officer for San Mateo, California-based WageWorks, thinks parents should have a flight plan for coping with needy kids.

That plan should encourage greater independence on the part of kids while setting an end date for when the help stops. Shedding some light on your financial situation can be a great motivator for illustrating to adult children just how much they're costing you, Dietel says.

[Read: Waiting for Energy Stocks to Refuel.]

"Often, sharing retirement income details will cause them to realize that they may need to help you if they don't help themselves now," she says.



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