5 big retirement risks and how to tackle them


Dmytro Zinkevich / Shutterstock

Pat yourself on the back. You saved, did the 401(k) thing, and built a nice portfolio. You probably have a million, maybe more. Now is the time to relax, travel, play with the grandkids, whatever. The point is, you’re done with work.

And that might be the scary part!

Without that usual salary, you have to make sure that your savings last for the rest of your life. But that could be two decades, maybe more. You don’t want to deplete your nest eggs, and you certainly don’t want to spend sleepless nights worrying about that.

But you got this, and we back you up. You have so many guns in your retirement arsenal, it’s just a matter of learning about them and spreading them around.

Here are some of the big retirement risks and how to tackle them.

1. Longevity risks

What is thatLongevity risk is the risk that you will outlive your savings.

Americans are living longer than ever before. In fact, life expectancy in the United States is about 77 years, and people retire on average before the age of 65. That’s a lot of years of not working to make sure your savings stays put – and if you stay healthy, it could be much longer.

Extreme fluctuations in the stock market can negatively affect your portfolio, and there are unplanned expenses: illness, home repairs, a sick pet, you name it. And don’t forget inflation and keep the price of everything high.

what you can doTo create additional monthly income, consider an annuity or a reverse mortgage. To beat inflation, set aside a portion of your savings for stocks and other investments that are likely to appreciate in value.

How a counselor can help: If you’re not sure how much money you’ll need in retirement, talk to a financial advisor. A good advisor will help you determine your post-retirement income, spending, and future plans. After that, they will make a clear plan.

The value of working with a financial advisor varies by person, but according to an independent study, people who work with a financial advisor feel more comfortable about their finances and can end up with about 15% more money to spend in retirement.

Use this free matching service to connect with three qualified financial advisors in your area in five minutes. The first appointment is usually free.

2. Market risk

What is thatMarket risk, also called “systemic risk,” is the risk of the entire stock market going down, taking your savings with it.

This is why investing in stocks, even though they are an important part of your overall savings, can be intimidating. While stocks have historically risen over time, sudden drops of 10% or more are not uncommon. At the wrong time, it can be devastating.

what you can do: Do not put all your eggs in the stock basket. diversification. Ideally, your portfolio should be a mixture of stocks, bonds, and the like. Your ideal personal combination depends on your age, risk tolerance, and other factors.

How a counselor can helpAs you plan and invest for retirement, be sure to develop the right mix of investments. Talk to an investment professional. Even if you are sure that you got a good result, a review by an outside expert will never hurt.

3. Health risks

What is thatThe risk that health care expenses eat up your savings more than you planned.

You are in good health today, but unfortunately, sooner or later, especially as you get older, the odds increase that you will need expensive medical treatment. Medicare will help, but it won’t pay for everything. For example, Medicare does not pay for extended stays in a nursing home, which cost on average more than $7,000 per month.

According to a study by Fidelity Investments, the average 65-year-old couple today will incur about $300,000 in medical expenses during their retirement years.

what you can doThe best defense for offsetting medical expenses is to be proactive by eating healthy, exercising, and getting regular checkups. You could also consider long-term care insurance, which pays for all or part of your long-term nursing care. But it’s not cheap and gets expensive as you pass retirement age.

Another way to save for health expenses is with a Health Savings Account (HSA). If you have high deductible health insurance and otherwise qualify, you are not taxed on HSA contributions, your account grows tax free, and withdrawals for qualifying medical expenses are not taxed.

You can also explore Medigap and Medicare benefit plans. Both can reduce health care costs after retirement.

How a counselor can helpFacing potential healthcare challenges is critical and planning for them is complex. Contact an expert advisor for assistance.

4. Inflation

What is thatInflation occurs when the cost of goods and services increases over time. It affects everyone, but is especially dangerous for retirees, who lose the ability to earn more even as the cost of living increases.

Consider this: In 1980, the median annual wage was $1,513. The average amount retirees need to fund their retirement was $134,125.

The difference between the past and the present? This is inflation.

what you can do: Buying stocks that carry some risks, but have historically exceeded inflation rates. Real estate is also an inflation hedge, as are investments such as TIPS (Treasury Inflation Protected Securities), which adjust to keep pace with inflation.

How a counselor can help: New ideas and techniques to defeat inflation are being developed all the time, so be sure to cover your bases by talking to an expert, especially when you can match up with a consultant in five minutes for free.

5. Tax risks

What is thatRisks of changing tax rules and policies.

Whether you’re still working or already retired, it’s important to do everything possible to keep income tax and other taxes from eroding your savings.

The federal government is constantly changing tax rules. For example, the Security Act, passed in 2017, has introduced several changes affecting retirees. And there could be more changes during the Biden administration.

what you can doHowever, as the IRS rewrites the rulebook, there are investment options and strategies to help deal with the tax burden, such as:

  • Municipal bonds, which are usually exempt from federal tax
  • Wise use of Roth IRAs and 401(k)s
  • Tax managed money, which is designed to reduce your tax burden
  • Exchange-traded funds (ETFs), which incur lower capital gains taxes than some mutual funds
  • Charitable Donations for Securities
  • harvest loss

How a counselor can help: While it is illegal to evade taxes, it is smart to reduce your obligations legally by understanding the rules. Seek help from a professional to make sure you don’t pay a penny more than you should and to plan the best way to access your retirement accounts in the future.

Bonus: Get $991.20 free every year

Over 1 million Americans have reported saving an average of $991.20 each simply by reading our completely free Financial Conversations newsletter.

Our newsletter gives you a daily dose of specific tips to help you achieve more, spend less and invest like a pro.

It takes less than five seconds to sign up, and if you don’t like it, less than five seconds to unsubscribe. Sign up for our free newsletter now and see what you’ve missed.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click on links in our Stories.