Common Retirement Risks

Jenny Handwerk |

Common Retirement Risks

Many people view retirement as a time to enjoy the fruits of their investments and be free of daily employment duties. However, it can also be unpredictable, and retirees frequently have limited flexibility when unexpected difficulties arise. Even one of the most desirable features of retirement — a long life — raises the possibility of outliving your assets.

Retirement is frequently the most risky period of a person's life because there are more life obstacles and fewer opportunities to raise income and savings. The term "retirement risks" refers to situations that can result in financial loss and reduced living standards for older persons. 

Overspending, investing too conservatively, and deviating from your plan are typical mistakes you can make on the road to retirement. The good news is that you can avoid them with discipline and planning.

 Other risks, such as a health crisis or a financial slump, are unavoidable, but you can use tactics to mitigate them. Here are some of the most prevalent threats to your retirement plan and strategies you may take to prepare for them.

I am running out of retirement money owing to longevity.

People are living longer lives due to healthier lifestyles and medical improvements. This is a global trend. While this is encouraging, it has modified the goals for retirement preparation. Because of the possibility of extended retirement years, investors must seek more financial resources to get through this era.

When planning for longevity, it is critical to consider rising medical care and expenditures and ensure that the income you draw during retirement accounts for the chance that you will live a long time.

One method for balancing longevity risk is to use a three-bucket technique. The goal is to distribute savings for urgent, near-future, and long-term requirements. The liquid is whatever will be needed within five years; income will be required for 30 years or more; and growth is used to offset inflation, taxes, and future healthcare costs.

Furthermore, deferring Social Security from full retirement age to age 70 will generate additional retirement credits of around 8% each year, resulting in a higher benefit later.

Health Care Risks

Unexpected medical bills and hefty out-of-pocket healthcare costs can significantly reduce retirement savings. According to Fidelity Investments data, a couple retiring at 65 in 2024 may expect to pay approximately $315,000 in health care costs. A single person should expect to pay half that.

Few retirees obtain health benefits from their previous employers. According to Kaiser Family Foundation data, only 13% of big businesses provided retiree health coverage to Medicare-age retirees in 2022. In addition, more employers are selling Medicare Advantage plans to retirees to save money.

Most retirees choose and pay for their own healthcare coverage, such as Original Medicare (Parts A and B) with supplemental benefits or Medicare Advantage. Additionally, Medicare does not cover everything. Most dental procedures, eye examinations, dentures, hearing aids, and long-term care are not covered. Even if Medicare covers the item, there may be a deductible.


Not only can the average cost of living spiral, but healthcare inflation after retirement will quickly outpace the rises investors are used to before retiring. 

Electricity prices, rates, and property taxes have all risen over inflation. Over time, one can expect inflation to range between 6% and 8%, but these are charges over which you have no influence. It appears doubtful that the recent growth pace will slow down.

While you have no direct control over inflation, you can take some measures to reduce its impact, according to Ingram. If you are over-exposed to low-risk, interest-rate-linked investments, this will impact your savings. If you constantly outpace inflation, you can stay caught up. The most effective strategy to shield yourself against the consequences of inflation is to invest in an asset class with the best possibility of outperforming inflation over time, namely equities.

Investment Risks

 In addition to unclear life expectancy, the performance of an individual's assets contributes to the ambiguity surrounding how long their money will endure. Financial markets may provide below-average returns over time.

Market risk is losing money during a market downturn due to market volatility, political/economic/social situations, other investors' conduct, and interest rate changes. It may apply to both stocks and bonds. While all investors face market risks, retirees have less time for their investments to recover.

How to Prepare for Post-Retirement Risk

The key to mitigating post-retirement risk is careful planning. There are things you can do that have no direct influence on your retirement savings but may significantly impact the quality of your retirement. A common example is maintaining a decent physical shape.

On a financial level, working with a trusted financial counselor is the best preparation. They will be able to provide informed investing advice and comprehend the nuances of Social Security, annuities, life insurance, and other topics. These specialists can view the big picture without being swayed by emotions, which are too common when making retirement decisions.