5 Common Retirement Income Risk Factors

What could derail your retirement plans?

To help increase the likelihood you’ll have the funds you need throughout your retirement, keep these five factors in mind:

1. Longevity

While none of us can predict how long we’ll live, it’s helpful to know that, on average, an American at age 65 will spend approximately 20 years in retirement.* In fact, as life spans increase, some will spend more time in retirement than they spent working.

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

As you do your retirement income planning, consider your family history and personal health. How old did your parents and grandparents live to be? Are you taking good care of yourself? If you think you’ll live to a ripe old age, that’s great, but you’ll need to employ strategies to help ensure your assets last as long as you do.

2. Inflation

Even relatively low inflation may erode your savings’ purchasing power over time and affect your lifestyle. The longer you spend in retirement, the greater its potential effect.

It’s important to develop a retirement income strategy to help outpace inflation, and that may mean holding a larger allocation to stocks for their growth potential. However, you’ll also need to keep your risk tolerance in mind. Staying ahead of inflation is great, but so is being able to sleep well at night.

3. Market volatility

When creating your retirement income plan, consider the effect a volatile market could have on your assets. You may be in retirement for 20 or 30 years, and the markets will likely fluctuate dramatically during that time.

To account for potential volatility, diversify your investments. Combining stocks with bonds, real estate, and other types of investments can help you manage the level of risk in your portfolio.

It’s also important to review your investments regularly in retirement to see if you need to make adjustments. For example, when you retire, you may still have a significant portion of your investments in stocks, but as time passes, you might want to increase the amount you have in bonds for their price stability and income potential.

4. Health care/unexpected expenses

Retirement income planning should address an array of potentially changing needs, including contingency funding for unexpected expenses that might include health issues, long-term care, and additional family support. Strategies to address these concerns may involve different types of insurance or simply keeping an emergency fund in low-risk, low-return investments.

5. Withdrawal strategy

Retirement income planning should address potentially changing needs.

An essential part of retirement income planning is determining an appropriate withdrawal strategy, which can play a critical role in determining how long your assets will last. A traditional rule of thumb has been to withdraw 4% of your investments’ value each year. Financial professionals now believe a flexible approach to spending and withdrawals that’s tied to stock market and other conditions may be your best bet for lifelong retirement income. Consider reducing your spending and, as a result, your withdrawals when there’s a market downturn and return to normal if the market recovers.

Next steps

  • Your Financial Advisor will work with you before and throughout your retirement to help you navigate retirement income risks.
  • Include these common retirement risks in your retirement income planning.
  • Keep track of inflation and your 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, ssa.gov.