7 Things Most Retirees Don’t Know About Risk Management
Picture This:
Martha and Jim, a newly retired couple, sit at their kitchen table reviewing their retirement portfolio. After decades of diligent saving and investing, they felt confident about their financial future.
That confidence was tested when an unexpected market downturn occurred, significantly reducing the value of their retirement accounts over just a few months.
“We thought we had it all figured out,” Martha told me later, her voice tinged with regret. “We never realized how vulnerable we really were.”
While their story is fictionalized to protect privacy, it echoes a common theme I’ve seen throughout my career in wealth management. The truth is: risk management in retirement is more nuanced than most people realize.
Below are seven risks that often go unnoticed — yet they could make a significant difference in whether your retirement feels secure or uncertain.
1. Sequence of Returns Risk
This is one of the most misunderstood concepts in retirement planning. Imagine two retirees, both starting with $1 million and withdrawing $40,000 annually. One retires just before a market downturn. The other retires at the start of a bull market.
Even if both achieve the same average return over 20 years, their outcomes can be dramatically different due to the order in which returns occur.
I once worked with a client who retired in early 2008. He had diversified wisely and followed a conservative withdrawal strategy. But the timing of the financial crisis, paired with ongoing withdrawals, put major strain on his plan — requiring significant lifestyle adjustments.
The takeaway: Timing matters. Planning for market volatility early in retirement is essential.
2. Inflation Risk – The Silent Wealth Killer
Most retirees understand inflation exists — but few grasp how significantly it erodes purchasing power over time. At just 3% annual inflation, your money loses half its buying power in about 24 years.
That means if you need $50,000 today, you’ll need roughly $100,000 to maintain the same lifestyle a couple decades from now.
Healthcare inflation compounds the problem. A couple I worked with had budgeted carefully for retirement — including a small inflation buffer. Yet 10 years in, rising medical costs had nearly doubled their healthcare spending, putting real pressure on their financial plan.
3. Longevity Risk – The Risk of Living Too Long
It may sound strange, but outliving your money is one of the greatest financial risks in retirement. Advances in healthcare mean many retirees now live well into their 90s.
Take Patricia, a client who recently celebrated her 95th birthday. When she retired at 65, her plan was designed to last 20 years. Fortunately, we had strategies in place — like lifetime income streams and growth investments — to adapt her plan for a longer horizon.
Living longer is a gift — but planning for longevity is critical.
4. Portfolio Singularity Risk
This is the risk of having too much wealth concentrated in one area — such as company stock, real estate, or even bonds. True diversification means understanding how assets perform in different market environments.
One client, Tom, had built up a large position in his former employer’s stock. Despite recommendations to diversify, loyalty held him back. When the company experienced regulatory challenges, its stock dropped sharply, taking a significant portion of his retirement savings with it.
Diversification isn’t just a strategy — it’s protection.
5. Interest Rate Risk
Rising interest rates don’t just affect bonds. They influence real estate, dividend-paying stocks, business valuations, and more.
Many retirees default to “bonds for safety,” but in a shifting rate environment, that assumption can be risky. A modern approach to fixed income considers duration, credit quality, inflation sensitivity, and broader economic impact.
6. Behavioral Risk
This is the tendency to make emotionally driven financial decisions — especially during market turbulence. It’s human nature to want to sell during downturns and buy during rallies. But these reactions often work against long-term success.
We’ve seen investors sell at the bottom of the market, then miss the rebound — permanently impairing their portfolios.
Working with a fiduciary helps you stay disciplined, even when emotions run high.
7. Healthcare Cost Risk
According to Fidelity’s 2021 estimate, an average 65-year-old retired couple may need approximately $300,000 (after tax) to cover healthcare expenses throughout retirement — and that’s before considering long-term care costs.
Source: Fidelity Benefits Consulting, 2021
Planning ahead for healthcare expenses — including Medicare premiums, out-of-pocket costs, and insurance solutions — is essential.
The Bottom Line: Risk Management is Not a One-Time Event
Effective retirement risk management is like flying a plane. You wouldn’t want a pilot who only checks the instruments once a year — and you shouldn’t settle for a retirement plan that isn’t monitored and adjusted over time.
Markets evolve. Laws change. Your life changes.
True wealth planning is proactive, not reactive.
Martha and Jim — like many before them — learned the hard way. But with guidance, they put a new plan in place that accounted for each of these seven risks. While no plan can guarantee outcomes, they feel more confident and better equipped to weather uncertainty.
Ready to Take the Next Step?
The one thing that shouldn’t define your retirement is financial worry. Your later years should be about freedom, family, and fulfillment — not market stress or uncertainty.
To learn more about protecting your retirement from these and other risks, explore our Wealth Transfer blog in the Retirement Encyclopedia. There, you'll find additional insights to help you safeguard your financial future.
Disclosures:
All client names and personal details have been changed to protect privacy. Scenarios are illustrative and based on real advisor experience but modified for educational purposes. This content is for informational use only and should not be construed as personalized investment advice. Please consult with a qualified fiduciary advisor before making financial decisions. Past performance is not indicative of future results.
