One of the reasons it's difficult to prepare for retirement is that there are so many things we simply can't predict about it. We don't know how long we will live, how much our investments will earn and how much of our purchasing power inflation will erode. Here are some of the scariest retirement unknowns and how to cope with them:

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How long you will live. If you are in good health and longevity runs in your family, there's a realistic chance you could live into your 90s or even past 100. Depending on when you retire, your retirement savings could need to last for 30 years or more, and there's a serious risk you could spend down your savings too quickly. Social Security and traditional pension income are the best ways to protect yourself from running out of money because the payments last the rest of your life, no matter how long that is. Some people also use a portion of their savings to purchase an annuity that promises lifetime monthly payments in exchange for handing over a lump sum. "If I find out they are still short after Social Security, pension and annuity income, I look to fill that gap with a safe investment," says Donald Hance, a certified financial planner for Glenmore Financial in Pacific Palisades, Calif. "I typically build a bond ladder to fill the gap so that the rest of the money that they need will be in a safe investment." Delaying retirement for a few years also shortens the period your savings needs to last.

Investment returns. While the value of the stock market is likely to increase over the long term, there's no predicting what will happen during the years shortly before or after you retire. Older workers and retirees often compensate for this by shifting a portion of their money into conservative investments with more predictable returns. You can also control the fees you pay for your investments. Choosing low-cost investments in retirement means you will have more money available for spending. "If you are shooting for a 7 percent total return on your portfolio and your investment adviser is charging 1 percent and your fund adviser is charging another 1 percent, that's 2 percent of your account that is going directly to fees," says Peter Disch, a certified financial planner for Disch and Associates in Boston. "If you can reduce that amount by choosing lower-cost funds that charge 25 basis points, you have just reduced the cost of investing from 2 to 1.25 percent."


Inflation. One of the best ways to protect yourself from inflation is to maximize your Social Security benefit, which is adjusted each year to keep up with inflation as measured by the Consumer Price Index. Taking a part-time job at current wage levels is another way to keep your spending power current. Other inflation-fighting strategies include investing in inflation-protected bonds and keeping a portion of your money in the stock market to capture the overall growth of the economy. "The reason you will be paying more for stuff is because companies will be raising prices on stuff," Disch says. "When you have a stake in those companies that will be raising prices on you, you will have an effective hedge against inflation."

Health care costs. Health care expenses are likely to increase as you age. Costs can quickly skyrocket if you develop a chronic condition and require ongoing care or medication. Waiting to retire until you qualify for Medicare can help you to control health care expenses, but even then, health care certainly isn't free. Medicare has premiums, deductibles and copays, just like private health insurance. Retirees typically have to pay 20 percent of the Medicare-approved amount for most medical services with no annual limit on what you might need to pay out of pocket. Medicare Advantage or Medigap plans can be used to fill in some of these potentially large out-of-pocket costs in exchange for an additional premium cost. "A supplemental policy makes a lot of sense for most people," says Bonnie Sewell, a certified financial planner for American Capital Planning in Leesburg, Va. "If you are a high consumer of health care, then you certainly want more protection."

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Emergency expenses. The need for an emergency fund doesn't end when you retire. Appliances will break, cars and homes will require repairs and you will need to pay for these things out of your retirement savings. "Everybody needs an emergency fund, whether you are 18 or you are 90," says Andrew Feldman, a certified financial planner and president of AJ Feldman Financial in Chicago. He recommends keeping three to six months' worth of living expenses in cash or other easily accessible investments in retirement. "You don't want to have to sell your portfolio at an inopportune time to pay for an emergency."
