4 Risks That Can Impact Your Retirement

Liz Whitteberry |

Even with careful planning and diligent saving, some parts of retirement planning are out of your control. Factors like longevity, rising medical costs and the ups and downs of the market can have an impact on your savings. But while you can’t plan for the unexpected per se, there are ways you can manage these risks and protect your retirement income. Here’s a look at four common retirement risks and how to address them.


1. Longer life expectancy

Americans are living longer now than ever before. Government figures put average life expectancy at about 79 years old, but you could live much longer than that, and financial experts suggest planning for retirement living costs well into your 90s.


There are many benefits to living longer, but it also means carefully considering strategies to avoid outliving your savings. One strategy to consider is to delay the age you start collecting Social Security benefits. You are eligible to start collecting Social Security at age 62, but the longer you wait, the larger your benefit will be. For example, if you turn 62 in 2021, and you can hold out claiming your benefit until age 70, you’ll increase your monthly payment by 77 percent.  Depending on your age and the age of your spouse, as well as your other resources, this could improve the success of your plan.


2. Medical costs and long-term care

Another implication of living longer is increased health care costs. On average, a healthy 65-year-old couple can expect to spend more than $300,000 on health care alone in retirement. While Medicare covers many medical expenses you’re likely to face, it doesn’t cover everything, including the cost of long-term care.


Long-term care refers to assistance needed for daily activities, like eating, bathing or dressing. This type of care can be provided at home or at an assisted living facility like a nursing home. Those age 65 and older have a 70 percent chance of needing some form of long-term care as they age.


Even if you don’t anticipate needing long-term care anytime soon, it may be worth considering long-term care insurance now in case you need these services in the future. Consider purchasing coverage sooner rather than later as it typically becomes more expensive as you age, and take the time to compare your options beyond long-term care insurance so you have a plan that fits your situation.


3. Market risk

Market fluctuations are a natural part of the market cycle, yet a downward turn right before retirement can lower the value of your investments just when you need them most. As you near retirement, consider rebalancing your portfolio to include more lower-risk investments that are less likely to be affected when stock markets head south. 

The correct combination of lower-risk and higher-risk investments for your situation will depend on your unique situation. How much income will your portfolio need to generate, and when will you need it? How much growth do you need over time for legacy goals or to keep pace with inflation?  


4. Rising inflation

Inflation reduces your spending power and can have a big effect over a 30-year (or longer) retirement. There isn’t much you can do to stop inflation, but you can purchase assets that protect against some of its effects. For example, real estate investments are one option, as property prices tend to rise with inflation. Treasury Inflation-Protected Securities (TIPS) offer a fixed interest rate, but their principal is adjusted for inflation.  Incorporating these types of investments into your portfolio will help you hedge against the impact of inflation over time.


Understanding these risks to retirement can help you know how to address them and keep your savings on track.


This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Please note, changes in tax law or regulations may occur at any time and could substantially impact your situation. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was created by The Oeschli Institute to provide information on a topic that may be of interest.