Dealing with Retirement Risks

Planning for retirement can be stressful and complicate. There are three unusual retirement risk that many people ignore that they shouldn't.
Table of contents

Annuities yield less income when long-term interest rates at the time of purchase are low. Low real interest rates will also cause purchasing power to erode more quickly. Lower interest rates can reduce retirement income and can be particularly risky when people are depending on drawdown from savings to finance their retirement.

On the other hand, a problem also exists if interest rates rise, as the market value of bonds drops. Bond prices move inversely to interest rates.

Common Post-Retirement Risks To Be Aware of

Increases in interest rates can also negatively impact the stock market and the housing market, thereby affecting the retiree's disposable income. As such, high real interest rates, over and above rates of inflation, make retirement more affordable.


  • About the blog.
  • The 3 retirement risks: What are they and how can you manage them?.
  • Sex & the Single Therapist (Dr. Ally Skye, Sex Therapist romantic mystery series Book 1).
  • Red Lily: Number 3 in series (In the Garden Trilogy).

See Why do interest rates tend to have an inverse relationship with bond prices? Stock market losses can seriously reduce retirement savings. Common stocks have substantially outperformed other investments over time, and thus are usually recommended for retirees as part of a balanced asset allocation strategy. However, the rate of return that you earn from your stock portfolio can be significantly lower than the long-term trends. Stock market losses can seriously reduce one's retirement savings if the market value of your portfolio falls. The sequence of good and poor stock market returns can also impact your retirement savings amount, regardless of long-term rates of return.

A retiree who experiences poor market returns in the first couple of years in retirement, for example, will have a different outcome than a retiree who experiences good market returns in the first couple of years of retirement, even though the long-term rates of return might be similar.

Early losses can mean less income during retirement. Later losses can have a less-negative impact, as an individual may have a much shorter period over which the assets need to last. Loss of pension plan funds can occur if the employer that sponsors the pension plan goes bankrupt or the insurer that is providing annuities becomes insolvent.

Defined-contribution plan accounts are not guaranteed, and plan participants bear losses directly. However, unlike pension plans, the balances in these accounts usually do not depend on the financial security of the employer, except for the employer's ability to make matching contributions and in cases where plan balances include company stock.

Government policies affect many aspects of our lives, including the financial position of retirees. These policies often change over time along with government policy. Policy risks include possible increases in taxes or reductions in entitlement benefits from Medicare or Social Security.

Retirement planning should not be based on the assumption that government policy will remain unchanged forever. It is also important to know your rights and to be aware of your entitlements to state and local authority benefits. Even the best-laid retirement plans can fail as a result of unexpected events. Although some risks can be minimized through careful planning, many potential risks are completely out of our control. However, understanding what the potential post-retirement risks are and considering them in the retirement planning stage can help to ensure they are mitigated and properly managed.

Six Retirement Risks—and a Plan for Dealing With Them

Don't use uncertainty about the future as an excuse to do nothing. Things may not go according to plan; you can't foresee every bump in the road. People preparing for retirement or already in retirement should consider them carefully: Personal and family — Changes in your life or the life of a loved one. Healthcare and housing — These include the risk that failing health will require professional caregivers or moving to a facility. Financial — These risks revolve around inflation , investments and stock market activities.

Public policy — Government can make decisions that could affect retirees. Personal and Family Risks Employment Risk Many retirees plan to supplement their income by working either part-time or full-time during retirement. Longevity Risk Running out of money before they die is one of the primary concerns of most retirees. Change in Marital Status Divorce or the separation of a cohabiting couple can create major financial problems for both parties.

Unforeseen Needs of Family Members Many retirees find themselves helping other family members, including parents, children, grandchildren and siblings. For example, an income allocation model not only includes the traditional asset management diversification, it must also include diversification among equity income guarantees, longevity insurance, inflation protection, long-term care coverage and death benefits. There is no single product that addresses the six key risks of retirement, so the idea is to diversify among different products, including the risk based products, during the retirement years, to effectively address them all.

Five Retirement Risks | Thomas Fenner Woods Agency, Inc

Again, your advisor is key during all of this. The final step is execution. We are entering the age of personal responsibility for our own financial well-being. This is a good blueprint to help you begin to do that.

To manage the risk of interest rates, the SOA says retirees and would-be retirees could invest in immediate annuities, long-term bonds, mortgages or dividend-paying stocks. First of all, the SOA says, retirees and older workers should limit stock market exposure.


  • Categories.
  • 3 Unexpected Risks to Prepare for in Retirement.
  • Types of Post-Retirement Risks;
  • Successful Retirement – Dealing with Retirement Risks.
  • .

If you do invest in the stock market, be sure to diversify; spread your money among different investment classes and individual securities to decrease your risk. Also consider investing in financial products like mutual funds that invest in stocks, but guarantee against the loss of principal. If your employer declares bankruptcy, what happens to your pension? If your annuity insurer becomes insolvent, where does that leave you?

Personal and Family Risks

Many terrible things can happen to your retirement funds but there are ways to manage these risks. Before investing, do your homework. Check credit ratings to determine if any may be at risk for bankruptcy. Of course, you are already protected from some risks such as if your employer does go out of business, the Pension Benefit Guaranty Corp insures your defined-benefit pension plan up to certain limits.