Four retirement risks: what are they, and how do I prepare

1 min readLast updated October 4, 2023by Rachel Carey

Retirement planning requires you to think multiple steps ahead. While this planning is mostly positive – thinking about how you will spend your free time, where you will live, and places you might travel to – it is also important to consider what barriers could stand in your way.

When you enter retirement, risk increases.  

To make sure you’re retirement goes smoothly, keep these three factors in mind:   

1. Longevity – will your savings go the distance?  

No one knows how long they will live, meaning planning how you will spend and save during retirement can be tricky, especially when considering increasing life expectancy.   

Take those living off their savings, for example. You don’t want to become a miser in retirement and die leaving a pot of money that could have made things more comfortable. Alternatively, you don’t want to overspend to the point where you’re living your final years in poverty.   

Outliving your savings is a huge worry for retirees. Take someone who retires at 65. If they live to 100, they will require income for 35 years.  

2. Inflation – can your money keep up?  

Inflation can erode your savings and threaten the lifestyle you’ve become accustomed to. So, unsurprisingly, according to the Unbiased Retirement Confidence Survey, when asked about their concerns when it came to retirement planning, most people (59%) chose inflation as one of their concerns.  

People in retirement are especially vulnerable, particularly those on fixed incomes or who have a lot of their savings in cash.   

Social Security does make cost of living adjustments (COLA) to ensure recipients can still purchase goods and services when prices rise. In 2022, Social Security Administration announced that the COLA for 2023 benefits would increase by 8.7 percent, the largest increase since 1981.  

With prices continuing to rise, your money has to work harder. According to calculations by Merrill, a Bank of America division, over 10 years, a relatively low inflation rate of 2% can bring the value of every $100,000 saved down to $81,707.   

3. Market volatility – how do you navigate the highs and lows?  

The financial markets move up and down, and over the last number of years, they have been particularly volatile and complex. Unfortunately, for pending retirees, this market volatility could spell trouble for your savings.   

For example, in a market downturn, just as you are about to retire or within your first few retirement years, the value of your investments could reduce. This can have a long-term impact on savings which can be difficult to recover from.   

With retirement potentially lasting up to 30+ years, it gives plenty of time for the markets to fluctuate dramatically. To combat this, including a strategy for a volatile market in your retirement planning is essential.   

4. Healthcare – how to prepare for the unexpected? 

Increased medical bills are inevitable as we get older. Annual checkups turn into more regular doctor visits. So, adapting to this change in routine without proper planning can be costly.   

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2022 needed approximately $315,000 saved (after tax) to cover health care expenses in retirement.  

Multiple types of healthcare insurance are available to US citizens to cover these expenses, including private insurance, Medicare, and Medicaid.   

While all those over 65 are eligible for Medicare, it does not cover all health expenses. Depending on how long you or your spouse worked and paid Medicare taxes, there may also be a cost associated with Medicare. For those below the threshold of 10 years, the premium for Part-A is either $278 or $506 in 2023.    

Long-term health insurance is an option for those worried about long-term care costs. Although purchasing this in your 50s is recommended, the longer you wait, the more expensive it becomes.   

A health savings account (HSA) is also an option. This type of savings plan allows you to set aside pre-tax money to pay for qualified medical costs. However, you may only contribute to an HSA if you have a high-deductible healthcare plan. Earnings from an HSA are tax-deferred, and distributions for qualified medical expenses are free from federal taxes. Your HSA balance can also be invested, allowing it to grow over time. 

How do you make sure your money goes the distance?  

Retirement is risky business.  

However, the good news is there are ways to protect yourself against some of retirement's biggest threats. Here are just four ways you can protect your future income:   

  • Delay your Social Security payments – while you can start claiming benefits once you hit 62, delaying filing for Social Security means your money will increase. According to the Social Security Administration, if those born in and after 1960 delay receiving their benefits until their 70th birthday can expect to receive 124 percent of their normal amount. This helps you lock in a larger income stream for a longer period.  

  • Purchase an annuity – some retirees use a portion of their savings to purchase a life annuity. These insure against issues of longevity and market volatility as annuities provide guaranteed income no matter how long you live or what happens in the market.  

  • Don’t draw down too much money – it can be tempting to withdraw your assets in the early days of your retirement. Instead, withdrawing your assets carefully can make them go further, giving them more time to grow. Of course, this goes for your retirement funds as well. Work with your financial advisor to develop a withdrawal program and plan how much you will withdraw each year and from where. This will help your assets grow, and your tax bill will remain low.   

  • Diversify your investment portfolio – to help mitigate against inflation, it’s important to consider investments that can grow alongside inflation. These can include real estate, stocks, and Treasury Inflation-Protected Securities (TIPS). TIPS are a type of treasury bond that goes up with inflation and down with deflation. When a TIPS matures, you get either the increased (inflation-adjusted) price or the original value, whichever is greater. While for those looking to reduce the impact of market volatility, adding more bonds to your investment portfolio is a good idea.   

Are you looking for guidance when it comes to your retirement planning? A financial advisor can help you to make confident financial choices and help you navigate through one of life’s biggest financial decisions.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.