As Baby Boomers transition into retirement, ensuring financial security becomes paramount in the face of potential uncertainties. From market fluctuations to health care expenses and longevity risks, navigating these challenges requires proactive planning and strategic decision-making. Here are some actionable steps for Baby Boomers to protect their finances and secure a prosperous retirement.

Before diving into specific strategies, it's crucial for Baby Boomers to grasp the various financial risks they may encounter in retirement. These risks include market volatility, health care costs, inflation and the need for long-term care. By recognizing and addressing these risks, Boomers can better prepare themselves for the financial challenges ahead.

1. Building an emergency fund.

A robust emergency fund serves as a financial safety net, providing Baby Boomers with peace of mind in the face of unexpected expenses or income disruptions. While conventional wisdom suggests setting aside three to six months' worth of living expenses, retirees may benefit from a larger emergency fund to account for potential health care or long-term care costs.

Baby Boomers should carefully assess their current expenses and financial obligations to determine the appropriate size of their emergency fund. Additionally, they should consider potential health care costs, including deductibles, copays and out-of-pocket expenses, when calculating their emergency fund needs.

By setting aside a sufficient amount in their emergency fund, Boomers can protect themselves against unforeseen financial emergencies and maintain financial stability in retirement.

2. Ensuring sufficient insurance coverage.

Reviewing insurance policies is essential to ensure Baby Boomers have adequate coverage to mitigate various risks in retirement. Health insurance plays a critical role in covering medical expenses, while long-term care insurance can protect retirement assets from the high costs of assisted living or nursing care. Additionally, life insurance and disability insurance provide financial protection for you and/or your loved ones in case of illness or death.  

Baby Boomers should thoroughly review their insurance policies to understand the extent of coverage provided and any limitations or exclusions. They should also assess their potential health care needs in retirement and consider purchasing supplemental insurance, such as Medicare Advantage plans or Medigap policies, to fill gaps in coverage.

3. Diversifying investments and managing risk.

Diversifying investment portfolios is key to mitigating risk and preserving capital in the face of market volatility. While reducing exposure to equities near retirement is prudent, certain financial products, such as annuities, offer protection from market fluctuations while providing a reliable income stream. Annuities with guaranteed income features can help cover income needs not fully met by Social Security benefits.

Baby Boomers should work with a financial adviser to develop a diversified investment strategy tailored to their risk tolerance, financial goals and time horizon. This strategy may include a mix of stocks, bonds, mutual funds and other asset classes designed to generate income and preserve capital.

4. Properly preparing for health care costs.

Health care expenses can pose a significant financial burden in retirement, making it crucial for Baby Boomers to prepare adequately. In addition to Medicare coverage, long-term care insurance should be considered.   

Baby Boomers should carefully evaluate their potential health care needs in retirement and explore various insurance options to mitigate the financial impact of medical expenses. They should research Medicare coverage options, including Parts A, B and D, as well as supplemental Medigap policies or Medicare Advantage plans.

5. Considering investments that combat inflation.

Preserving purchasing power is essential in retirement, necessitating investments that keep pace with inflation. Certain stocks or mutual funds focusing on sectors with growth potential or dividend-paying companies can provide a hedge against inflation while generating income for retirees.

Investment options may include dividend-paying stocks, real estate investment trusts (REITs), inflation-protected bonds and  Treasury inflation-protected securities (TIPS). By allocating a portion of their investment portfolio to inflation-fighting assets, Boomers can mitigate the erosive effects of inflation on their retirement savings and maintain their standard of living in retirement.

6. Setting up an estate plan.

Establishing a comprehensive estate plan is vital as Baby Boomers age. This includes naming financial and health care powers of attorney to make decisions in case of incapacity. Additionally, having a will or trust ensures assets are distributed according to the retiree's wishes, minimizing the risk of disputes or legal challenges.

Baby Boomers should work with an estate planning attorney to create a comprehensive estate plan that reflects their wishes and protects their assets for future generations. This may include drafting a will or trust to specify how assets should be distributed upon death, designating beneficiaries for retirement accounts and life insurance policies and appointing trusted individuals to serve as executors or trustees. Additionally, Boomers should consider establishing advance directives, such as health care proxies and durable powers of attorney, to ensure their wishes are honored in the event of incapacity.

Navigating financial uncertainties in retirement requires proactive planning and a multifaceted approach to risk management. By building an emergency fund, ensuring sufficient insurance coverage, diversifying investments, preparing for health care costs, considering inflation-fighting investments and setting up a comprehensive estate plan, Baby Boomers can safeguard their financial well-being and enjoy a secure retirement.

As they embark on this next chapter of their lives, Boomers can take comfort in knowing they've taken proactive steps to protect themselves from unforeseen challenges and pave the way for a prosperous future.

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Law is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.