Retirement Risks You Should Know & How to Handle Them

Know the risks of retirement, including risks you can't control like inflation, unforeseen expenses and more. Discover retirement risks so you can plan better....
David Roberts
June 14, 2021

The Problem Of Risk In Retirement

At some point you are likely going to have a moment of realization where the weight of uncertainty will be uncomfortable. You’ve always known that your fixed income and savings will have to support your retirement until the end of your life. But if you were to experience a financial setback sometime after you retire, will this still be possible?

Up until now you’ve had the flexibility and options needed to handle financial setbacks.

  • Save a little more
  • Spend a bit less
  • Take on more investment risk to increase gains
  • Earn more money
  • Push back your retirement date

But now you realize your flexibility and options aren’t available anymore or have changed.

You no longer have the risk capacity you once had.

Risk capacity is your ability to tolerate a decline in the value of your assets without experiencing a painful drop in your standard of living. Once you retire, your risk capacity diminishes sharply and continues to fall as you age. This should lead you to ask questions such as:

  • What happens if I live longer than expected?
  • What if drops on Wall Street reduce the value of my portfolio of invested assets?
  • Will I still be able to get back into the workforce and earn money if I absolutely need to?
  • Will I be able to manage unforeseen expenses or spending shocks?
  • Will a recession, high interest rates or inflation affect my retirement spending goals?
  • What will I do if my health and mental capability declines?

Fear of painful cutbacks or running out of money will hinder your ability to enjoy your retirement if it causes you to avoid spending your savings on those things which would otherwise make your golden years fulfilling. No one should have to face life with this type of uncertainty or fear. You have worked and saved and prepared. You deserve to enjoy your retirement years, especially early on while you are younger, healthier, and sharper.

The financial risks facing you as a retiree can be anticipated and planned for, helping you to face them with confidence.

First, you need to understand the risks, so you can take control and get prepared for the impact they could have on your retirement lifestyle and spending goals. Let’s go over some common risks facing retirees.

Reduced Ability to Earn Money and Save

While you are still in your career, it is easy to imagine that you could jump right back into the workforce and save more money if you faced a financial setback after you retire. The truth is that no one escapes an eventual decline in their human capital. As we get older and further away from our last work experience, we face fewer options to earn a paycheck and save more money.

Reduced Allowance for Lifestyle Expense

Unless your fixed income covers 100% of your retirement lifestyle, you must have the ability to regularly withdraw from your portfolio of invested assets. For the rest of your life this income stream must be able to cover the “gap” between your living expenses and the amount of your fixed income. A market decline could reduce the value of your portfolio and hinder its ability to meet your retirement spending goals. You will have to lower your standard of living so you don’t run out of money before you die.

Investment Risk Increases

Furthermore, a drop in the value of your portfolio may have a more severe impact on your ability to meet retirement spending goals if the drop occurs during your early retirement years. Withdrawals can quickly reduce the shrinking portfolio even further, leaving a smaller portion to experience the next market recovery. Bear markets have historically occurred once every ten years on average. No one can predict the timing, duration, and magnitude of these events. That means the date you choose to retire could precede the next bear market, and only hindsight will allow you to know if that was the case.

Unknown Lifespan

How long do you expect to make withdrawals from your portfolio of invested assets? Think about this: 50% of retirees will outlive the average expected lifespan. The truth is, we cannot know exactly how long we’ll live nor how long our retirement plan needs to last. How we respond to that truth is important.

Much like the lifestyle cutbacks we’ve discussed, conservative spending in retirement can decrease your chances of running out of money but can also negatively affect your enjoyment of life when it may not be necessary. Your lifespan could be less than average.

Unforeseen Expenses

To handle unforeseen expenses without taking on debt or making untimely withdrawals from their portfolio of invested assets, retirees need to remain flexible with their spending and maintain liquid assets (i.e. cash and CDs) which can handle spending shocks. Common emergencies retirees face include:

  • Helping a family member in need
  • Divorce
  • Rapid change in the expenses for the household (healthcare, taxes, etc.)
  • Home repairs
  • A significant medical event with long-term care needed

Rising Inflation

If you need your money to grow over time to meet spending goals, there is no “safe” or risk-free strategy. If you take all investment risk off the table by placing your savings in the bank, you’re now vulnerable to inflation risk which will quietly erode your purchasing power over time. You won’t feel it happening, because your balance always grows a little and never experiences the negative returns of the stock market. But consider this: if inflation were to rise at 4% annually, your purchasing power would be cut in half every 18 years, and it would then take $200 to purchase $100 of groceries at today’s prices.

Although inflation has been low recently, there’s no guarantee this will last, and you must have an “after inflation” positive return rate for your money – and purchasing power – to grow.

Declining Cognitive Abilities

We are all potentially at risk for a reduced mental capacity that will diminish our ability to make sound decisions. If this happens to you and you’re the one handling financial matters for the family, someone else will have to take over without the benefit of your knowledge and experience. Without a sound succession plan to follow, they could wind up making decisions which will jeopardize the remainder of your retirement. Furthermore, financial predators are lurking in wait for this type of situation and are ready to act.


Awareness of the risks retirees face can help you to take control of your finances and to design a retirement plan that will give you the confidence about the future that you want. Given your uniqueness and preferences for risk in general, there is no one-size-fits-all planning approach to soften the impact of these risks for you. However, a Financial Planner uses a tool called a Monte Carlo Simulation that can demonstrate the impact these risks can have on your financial plan, showing you a range of possible outcomes and success rates by using different variables. We can’t predict the future, rather we offer this as an educational tool and reference point to help you make your own decisions about how to best prepare for your retirement.

I hope this information has been helpful for you. I am happy to answer more questions or to help you design a financial plan that will give you the confidence about the future you want. Working with me is easy:

  1. Schedule a phone call
  2. Get the right financial plan for your situation
  3. Keep your plan on track with ongoing support from me
The Basic Guide To Tax Efficient Investing

The Basic Guide To Tax Efficient Investing

This comprehensive guide will help you understand the basics of tax efficient investing strategies, their importance, what are tax efficient investments, and how to invest tax efficiently to minimize taxes in retirement.

Why Hire A Retirement Financial Advisor?

Why Hire A Retirement Financial Advisor?

Planning for retirement can sound like a daunting task. There are many different ways to reach your financial retirement goals, and finding the best approach can be tricky. With retirement being a major milestone in most people’s lives, the pressure is even higher.

Early Retirement: What You Need To Know

Early Retirement: What You Need To Know

Early retirement might sound like an impossible dream. We all hope that if we work hard enough and save our money right that we can have a long retirement filled with travel and time doing what we love. There are many benefits of early retirement. It can allow you to relax and experience improvements to your health, and discover new opportunities to pursue the things you are passionate about.

Planning Early For Inherited IRA Distributions Matters

Planning Early For Inherited IRA Distributions Matters

There is no crystal ball for taxes or the future tax landscape, so waiting too long to begin your RMDs from an inherited IRA could result in adverse tax consequences. Coordinating the timing of your RMDs with tax factors such as anticipated income, deductions, and credits could help to minimize the negative impact on your inheritance.

Are You Including Social Security Income In Your Retirement Plan?

Are You Including Social Security Income In Your Retirement Plan?

Since Social Security impacts us all, it’s important that we stay informed about the reality of the program’s financial situation and the key role it plays in our financial lives. Its future impact on retirement planning should not be sold short. This applies to everyone, not just those who will rely heavily on their Social Security income to keep them from running out of money in retirement.

How To Achieve Financial Freedom

How To Achieve Financial Freedom

What is financial freedom? Financial freedom is the ability to make choices without high financial stress. For many people, it involves being able to choose whether they want to work, when they retire, and make purchases when they want. With financial independence,...

Get in Touch

Plan For Your Goals Logo

Many have no financial plan for retirement. At Plan For Your Goals, my mission is to help both the newly retired and the nearly retired take control of their finances with an evidence-based plan so they can retire with confidence.


Branch Office: 5954 E Bay Blvd, Gulf Breeze, FL 32563

(850) 786-3400

Check David's background on FINRA's BrokerCheck

Plan For Your Goals, LLC is a state registered investment adviser. Plan For Your Goals, LLC may only transact business in those jurisdictions in which it is registered or qualifies for an exemption or exclusion from registration requirements. Plan For Your Goals, LLC’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Plan For Your Goals, LLC’s web site on the Internet should not be construed by any consumer and/or prospective client as Plan For Your Goals, LLC’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Plan For Your Goals, LLC with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Plan For Your Goals, LLC. A copy of Plan For Your Goals, LLC’s current written disclosure statement discussing Plan For Your Goals, LLC’s business operations, services, and fees is available at the SEC’s investment adviser public information website or directly from Plan For Your Goals, LLC:  Click here to download a PDF copy.

This website and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.

Plan For Your Goals, LLC throughout this website has provided links to various other websites. While Plan For Your Goals, LLC believes this information to be current and valuable to its clients, Plan For Your Goals, LLC provides these links on a strictly informational basis only and cannot be held liable for the accuracy, time sensitive nature, or viability of any information shown on these sites.

The SmartVestor program is made up of financial advisors and other investing pros from across the country. SmartVestor is an advertising service that Plan For Your Goals, LLC pays a monthly fee for introduction to potential clients. Our firm utilizes this service as a lead generator. SmartVestor utilizes the “Ramsey Values” and uses the Ramsey Solutions as a paid promoter of SmartVestor Pros. SmartVestor has a vetting process that includes a certain number of years of full-time experience as a registered securities professional, and agreement to the Code of Ethics. Potential clients can use this matching service at no cost.

Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 Copyright © 2023 Plan For Your Goals, LLC. All rights reserved.

Retirement Readiness Score Quiz Icons

What's Your Retirement Readiness Level?

Take This FREE 60-Second Quiz To Discover How 'On Track' Your Savings Are For Retirement