Many people focus on saving enough money for retirement, but few consider the risks that could derail their financial plans. While market downturns and inflation are well-known concerns, other risks—like tax increases, healthcare costs, and longevity—can have an equally significant impact.
Understanding retirement risks can help you create a more resilient financial strategy, ensuring that your assets last throughout your lifetime.
1. The Risk of Rising Taxes
Many retirees assume that their tax burden will be lower in retirement, but this isn’t always the case. If tax rates increase in the future, withdrawals from traditional retirement accounts may be subject to higher taxes.
Strategies to Consider:
- Diversify tax-efficient retirement income sources, including Roth accounts and life insurance cash value.
- Consider Roth conversions while tax rates remain historically low.
- Work with a financial professional to structure withdrawals in a tax-efficient manner.
2. Healthcare Costs and Long-Term Care Expenses
Healthcare is one of the largest expenses retirees face, and it’s often underestimated. Medicare doesn’t cover all medical costs, and long-term care expenses can quickly deplete retirement savings.
Strategies to Consider:
- Plan for Medicare premiums, out-of-pocket expenses, and supplemental coverage.
- Consider hybrid insurance policies that offer long-term care benefits.
- Set aside a portion of assets specifically for healthcare-related expenses.
3. The Sequence of Returns Risk
Market downturns early in retirement can significantly impact the longevity of your savings. If you withdraw money during a market decline, it may be difficult for your portfolio to recover.
Strategies to Consider:
- Maintain a cash reserve or other low-risk assets to cover living expenses during market downturns.
- Consider a Volatility Shield, such as indexed universal life insurance, as a strategy to potentially mitigate the impact of market downturns on your investments.
- Use a diversified investment approach to manage risk.
4. The Risk of Outliving Your Savings
With increasing life expectancies, many retirees are at risk of outliving their savings. Running out of money later in retirement can create financial stress and limit lifestyle choices.
Strategies to Consider:
- Use annuities or other guaranteed income sources to provide a steady cash flow.
- Implement sustainable withdrawal strategies to extend portfolio longevity.
- Factor longevity into your financial planning to avoid shortfalls.
5. Inflation’s Long-Term Impact
Over time, inflation erodes purchasing power, making it more expensive to maintain the same lifestyle in retirement. Even a moderate inflation rate can significantly reduce the value of fixed income streams.
Strategies to Consider:
- Consider investing in assets that have shown potential for growth, such as equities.
- Use inflation-adjusted income sources, such as certain annuities or Social Security benefits.
- Diversify investments to include real assets like real estate or commodities.
Preparing for the Unexpected in Retirement
A successful retirement plan accounts for both expected and unexpected challenges. By proactively addressing these overlooked risks, you can create a more resilient financial future.
Hanson Wealth Management can help you navigate potential risks and tailor a strategy to meet your retirement goals. Contact us today to discuss your financial plan.
