After a lifetime of saving money, building home equity, and contributing to individual retirement accounts (IRAs), retirees should take steps to protect their assets. Long-term care or nursing home expenses, fluctuating markets, and impatient relatives can eat away at hard-earned assets. Retirees will want to balance their investment risks, ensure adequate income for their future, and protect assets from catastrophic medical expenses. When deciding on strategies to protect assets, retirees should:

 

• establish short-term and long-term goals

• determine their tolerance for risk

• consider the amount of risk versus amount of return

• calculate their income needs for the future.

 

 1  Purchase Long-Term Care Insurance

 

According to W. E. Griffith & Associates, one out of every two Americans will need long-term care in his or her lifetime. The cost of long-term care can be as much as $80,000 per year for an average stay of 2.5 years, according to Brown University’s RetirementGuard. In addition, costs are expected to rise 5% annually. Buying long-term care insurance protects your assets from this expensive proposition.

 

Premiums for long-term care insurance will cost the average American about one-third the cost of the care. People who purchase insurance early in retirement or pre-retirement can lock in rates. Waiting until you need insurance due to age or health issues might make it impossible or expensive to purchase long-term care insurance. While insurance companies may raise premiums across the board, they cannot single out specific people for increases.

 

 2  Diversify Income Streams

 

To protect assets and to acquire enough income to keep up with inflation, retirees need to secure and diversify their income sources. Retirees who have a sizable investment in the market are usually afraid of downturns that could substantially reduce their amount of investments. Investing everything in one high-profile company may not be as stable a decision today as in the past. A common mantra is to diversify income streams among stocks, bonds, mutual funds, and cash; these streams offer long-term growth potential with less risk than investing exclusively in the market.

 

If investment in the market still provides too much risk for you, CNN Money.com suggests moving a sizable portion of your portfolio to safe investments. These include certificates of deposit (CDs), money-market accounts, or short-term bonds. While these do not offer as much long-term growth as a healthy market might, they can offer peace of mind.

 

 3  Invest in Mutual Funds and Bond Funds

 

For additional income, retirees will want to invest in fixed income mutual funds and bond funds to receive reliable income payments and protect existing assets from draining. Mutual funds are considered lower risk than individual investments, because money is invested in a portfolio of stocks, bonds, or a combination. This portfolio also provides diversification.

 

Bond funds are also convenient and liquid, providing monthly income. Some bond funds pay interest, which is exempt from federal income tax, and some states exempt interest from state tax. Be aware that bond funds are not risk-free and are subject to credit risk, interest rate risk, and prepayment risk.

 

 4  Buy an Annuity

 

Another option for income source for retirees is to purchase an annuity. A fixed immediate annuity is an agreement with an insurance company in which fixed payments are made to the policyholder over the length of the contract, usually up until death. According to Forbes.com, $10 billion in fixed annuities are sold annually. Be sure to buy annuities from a properly licensed advisor.

 

Benefits of annuities:

 

• Annuities are paid out during a person’s life, unlike life insurance, which is paid out after death.

• Annuities offer reliable, fixed payments that are made monthly, quarterly, or annually.

• Annuities do not rely on risky stock market performance.

• Annuities are protected by state departments of insurance.

• Annuities offer tax-free growth on invested money, However, the beneficiary will pay taxes on the investment income.

 

 5  Plan Your Legacy

 

Protect your assets, keep them from prying relatives, and gain control over where they go after your death by writing a will. Assess your net worth by identifying all investments, savings, and real estate. Keep note of debt and taxes that will need to be paid by your estate. Put all your instructions for your assets in writing in the will. For safety, consult an attorney. Wachovia offers tips on legacy planning.

 

Discuss your last wishes with your family and your beneficiaries so that no misunderstandings result and your intentions are clear. In addition, name your executor – the  person who will execute your last wishes. Protect your will by storing it in a fireproof safe, in a safety deposit box, or with your lawyer.

 

For protecting real estate assets, consider establishing a trust. Different types of trusts include:

 

• Living trusts protect assets during your life.

• Testamentary trusts manage assets for beneficiaries.

• Revocable trusts protect assets from the cost of probate.

• Irrevocable trusts cannot be changed.