Understanding 5 Common Retirement Risk Factors

  • Inflation and longer life spans can be addressed by planning.
  • Have a flexible withdrawal strategy and a diversified portfolio to address market events.
  • Prepare for the unexpected.

Learn what to look out for

Understanding the risks that can come between you and the retirement you want is an important step toward meeting your retirement goals.

To help increase the likelihood you’ll have the funds you need when you reach retirement age, keep these five factors in mind.

1. Longevity

An infographic that says five retirement risk factors. 1. Longevity 2. Inflation 3. Market volatility 4. Health care 5. Withdrawal strategy

While none of us can predict how long we’ll live, people at age 65 have a high probability of spending 20 years or more in retirement.* As life spans increase, some will spend more time in retirement than they spent working.

2. Inflation

Inflation may erode your savings and impact your lifestyle. The longer you spend in retirement, the greater its potential impact.

It’s important to develop an income strategy to help outpace inflation and keep up with the increasing cost of goods and services.

3. Market volatility

Today’s financial markets have become increasingly volatile and complex. Many people wonder when they’ll be able to retire and how long their retirement assets will last.

  • A sudden market downturn may have a significant impact to investors who aren’t well diversified or don’t have time to wait for a potential market recovery.
  • When creating your retirement plan, consider the impact a volatile market could have on your retirement assets. You may be in retirement for 20 or 30 years and the market could fluctuate dramatically during that time.

4. Health care/unexpected expenses

Failure to develop a comprehensive retirement plan and then monitor and adapt it to changing circumstances can be costly.

Planning should address an array of potentially changing needs and market conditions. It should include contingency funding for unexpected expenses that might include health issues, long-term care and additional family support.

5. Withdrawal strategy

Develop an income strategy to help outpace inflation.

The rate at which you draw down savings and investment assets to pay for current living expenses in retirement plays a critical role in determining how long your income will last.

For most people, an essential part of retirement income planning is determining an appropriate withdrawal strategy. A flexible approach to spending tied to stock market and other conditions may be your best bet for lifelong income.

Being aware of these risks can help you plan proactively and be better prepared when you reach your target retirement date.

Next steps

  • Learn the common retirement risks and include them in your planning.
  • Keep track of inflation rates and your own life expectancy as they change over time.
  • Develop a strategy for adjusting your retirement withdrawals to address market performance and other factors.
  • Anticipate your health care costs and prepare to deal with unexpected events.

* Social Security Administration, Actuarial Study Number 120, Table 10, Life Tables for the United States Department of The Treasury, Internal Revenue Service; Publication 590: Individual Retirement Arrangements (IRAs) For Use in Preparing 2011 Returns, pp. 86-87, Single Life Expectancy Table.

Special Reports

A collection of the most recent thematic reports from Wells Fargo Investment Institute that cover varying topics of interest and importance to investors.

Read Our Insights
CAR0716-00283
CEX1801