7 Retirement Risks Retirees Face and How to Manage Them

Retirement, often viewed as the golden phase of life, is the culmination of years of hard work and diligent planning. The preparation for retirement is a meticulous process that involves careful consideration of savings, investments, and financial goals. Yet, even with all the planning and preparation, retirement can still come with its share of risks. From market volatility to healthcare costs in retirement, the uncertainties that accompany retirement can significantly impact your financial security and quality of life. By understanding the challenges that lie ahead, you can make informed decisions, and help ensure your hard-earned efforts result in a rewarding and financially secure retirement.

A financial advisor can help you understand the many risks associated with retirement. This article will help you understand these risks in detail, how they impact you, and practical ways to help manage retirement risks.

What are some of the risks retirees may face in retirement?

1. You may face market risk where the value of your investments drops due to market fluctuations

Market risk is one of the most prevalent risks you can face during your retirement years. As you approach retirement, your risk appetite drops. At the same time, you are also pushed to rely on your investments and retirement savings to generate income for your future years and keep pace with inflation. Any fluctuation in the stock market in retirement can significantly impact your portfolio’s value. This risk becomes even more pronounced as you no longer have a long investment horizon and may need funds for your immediate needs. If a significant market downturn occurs close to or during retirement, you would have limited time to recover from the losses. A prolonged bear market may also deplete your savings faster than anticipated, posing a risk of outliving your money.


If you have a substantial portion of your savings invested in the stock market, your money can be susceptible to experiencing significant swings. A sudden market downturn can considerably decrease your retirement portfolio’s overall value, leading to investment losses, financial anxiety, and uncertainty. This is why it is advised to lower your stock exposure and move to relatively low-risk options like bonds, Certificates of Deposit (CDs), money market accounts, etc. This can offer you a stable income while protecting you from volatility. You may also diversify with other assets, such as gold and other commodities that are inversely related to the stock market. These can offer a hedge against inflation while stabilizing your portfolio.

2. You may experience healthcare risk due to rising age and increased medical expenses

Healthcare costs in retirement can skyrocket with declining health, rising age, and lack of activity. As you age, you are likely to experience age-related health concerns, which can impact your activity levels and further contribute to poor health. Since most retirees choose not to work at all in retirement, they are also likely to socialize less. A lack of mental stimulation and socializing can also lead to mental health issues. Hence, healthcare risk is a crucial consideration during retirement planning. Medical expenses may also increase due to inflation. As retirees transition from employer-sponsored healthcare plans to Medicare, they may encounter financial challenges that can impact their overall retirement savings and quality of life.

While Medicare provides essential health coverage for retirees, it does not cover all medical expenses. Copayments, deductibles, and prescription drug costs can lead to unexpected out-of-pocket expenses. Irrespective of your financial situation, health emergencies, and unforeseen medical conditions can occur at any time. These may require immediate and often costly treatments.

Most people also forget about long-term care. Long-term care, whether at home or in a facility, can be financially burdensome. Long-term care services are also not typically covered by Medicare.


Including estimated healthcare costs as a separate category in retirement planning is crucial. Moreover, you must regularly review and adjust your plan to account for inflation and any changes in your health status. For instance, if you are diagnosed with a lifestyle illness that requires lifetime medication, you must prepare for the rising costs of prescription drugs and make sure you have adequate funds and insurance to cover such costs. You also need to account for the gaps in Medicare coverage and buy sufficient insurance to bridge them.

In addition, it is also advised to explore long-term care insurance options that provide coverage for assisted living, nursing home care, and home care.

3. You may face tax risk if you do not account for taxes and take necessary steps to lessen their impact on your retirement savings

Tax can directly affect your income from pensions, retirement accounts, and other investment returns. If you have traditional retirement accounts like the 401(k) and the Individual Retirement Account (IRA), you would be mandated to make Required Minimum Distributions (RMDs) from a certain age. These will be taxed at the prevailing tax rates. Some Social Security benefits may also be subject to federal income tax if your income exceeds certain thresholds. If an individual taxpayer’s combined income falls between $25,000 and $34,000, up to half of their Social Security benefits may be subject to taxation. However, if the combined income exceeds $34,000, up to 85% of the benefits could become taxable. For married couples filing jointly, if their combined income ranges between $32,000 and $44,000, up to 50% of their benefits may be subject to taxation. When the combined income surpasses $44,000, up to 85% of the benefits could be taxable.

These tax thresholds are essential considerations for retirees, as they affect the overall tax liability and financial planning during their retirement years. In addition to federal taxes, 12 states also impose state taxes on Social Security. Changes in tax laws and rates can also impact your income in retirement.


One of the best ways to lower your retirement taxes is by shifting your money to Roth accounts. Contributions to Roth accounts are made with income that has already been taxed, making qualified distributions from Roth IRAs and Roth 401(k)s tax-free. You can also consider non-taxable investments, like municipal bonds, that are usually exempt from federal and state income taxes. Another tax-efficient strategy is tax-loss harvesting, which involves offsetting capital gains with capital losses to lower tax liabilities on investment income. Consulting with a vetted financial advisor or tax planner can help you understand tax implications based on your financial circumstances and find ways to minimize your liabilities.  



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4. You may experience longevity risk if you live longer than expected and run out of retirement savings

Longevity risk is the risk of outliving your savings during retirement. If you unexpectedly live longer, you may run out of money and face financial challenges. Since life expectancy continues to rise, longevity risk is becoming a significant problem for retirees. The gradual depletion of funds can affect your quality of life. It can force you to live frugally and compromise on enjoying things you like. A longer life span can also increase healthcare needs and expenses. Longevity risk may lead to reliance on your family for financial support, which can lead to family disputes, anxiety, and stress.


Assessing your longevity risk during retirement may help you roughly determine your life expectancy. This involves considering factors such as your age, gender, and health habits. Utilize tools such as online life expectancy calculators to gauge the approximate span of years you may live. It may also be helpful to review your family history while planning for retirement. If your parents and grandparents lived long lives, you may have inherited similar genes. Even if your previous generations have not lived long lives, it is recommended that you consider a longer life expectancy when planning for retirement to ensure your financial resources last throughout your retirement. Make sure to buy health and long-term care insurance that can support you for life. Also, consider delaying your Social Security benefits beyond the full retirement age to increase the monthly benefit amount. It also helps to keep a diversified portfolio of stocks, bonds, guaranteed income annuities that provide a steady income stream for life, etc., to maximize your returns.

5. You may face inflation risk due to a rise in inflation and the value of your savings reducing over time

Inflation risk in retirement can erode the purchasing power of money over time. Since you have limited savings to rely on, inflation becomes a significant challenge during your golden years, even more so than before. When you are working, you can depend on your income, chase better-paying jobs, compensate for the shortfall with bonuses and commissions earned at work, and more. However, all of these avenues do not exist in retirement. Fixed pensions and annuities may not keep up with the rising cost of living. Medical inflation can also be concerning, especially as your healthcare-related expenses begin to rise. In addition, inflation can deplete your savings sooner than anticipated and pose the risk of outliving your retirement nest egg.


When creating a retirement budget, it is essential to factor in the impact of inflation on your expenses over time. This can include healthcare costs, groceries, utilities, gas, and more. While there is no way to eliminate inflation, you can prepare for it with optimal savings. This can be done by creating a diversified portfolio with a combination of inflation-beating instruments like stocks and fixed-income securities like bonds, CDs, etc. You can also invest in assets like Treasury Inflation-Protected Securities (TIPS) that provide returns in tandem with changes in inflation. Another way to deal with inflation can be by delaying claiming your Social Security benefits. This can help you claim a bigger check and use your benefits for longer. It is also essential to periodically review and rebalance your investment portfolio to ensure it remains aligned with inflation.

6. You may experience family risk due to certain situations such as divorce, illness, or death of a spouse

Family risk in retirement can stem from challenges like divorce, the illness or death of a spouse, separation, financial liabilities of your children, etc. Divorced and widowed individuals need to alter their tax filing status leading to different tax impositions. Divorce can also demand the division of your assets, alimony, and child support. Further, an illness of your spouse or child can pressure you financially and mentally. Adult children may also rely on their parents for financial support sometimes, leading to financial burdens. If you care for elderly parents, you would have another financial weight on your shoulders.


It is important to maintain an emergency fund to address unexpected expenses that arise out of your relationships. Developing a comprehensive estate plan can also help streamline things and avoid family financial disputes in the event of losing a loved one. If you are getting divorced, make sure to consult a lawyer, estate planning attorney, and financial advisor to understand the future financial implications of the situation. In addition, it is also important to have open communication with all your family members about financial matters. Further, you must evaluate your insurance needs, such as life, long-term care, and disability insurance, to safeguard your financial security in the case of a family member’s illness or untimely death.

7. You may be vulnerable to scams that could lead to a loss in savings

Being a victim of a scam can cause significant financial and emotional distress. Retired individuals may be perceived as vulnerable targets. Scammers can often take advantage of them and steal money. Investment fraud, identity theft, and phishing schemes are becoming common by the day. These scams are also becoming increasingly sophisticated with advancements in technology.


It is essential to stay informed about common scams and educate your family members who may be using the same bank accounts and credit cards as you. Avoid sharing personal or financial information with people you do not know and trust. Scammers can ask you for such details over the phone, email, or through unsolicited messages. Beware of common frauds in your area and alert your bank or the police in case of any discrepancy. The advancement of technology not only helps scammers but also allows you to be more secure. So, use two-factor authentications, passwords, etc., to secure yourself.

To conclude

Managing retirement risk is essential to ensuring a financially secure retirement. Make sure to account for them and other unexpected expenses that may disrupt your retirement plans. Maintain a balanced and diversified approach to investing and stay up to date with tax laws, inflation rates, and changes in economic policies. Seeking professional advice and staying vigilant can also be helpful.

If the potential risks you may face in retirement seem overwhelming, consult with a financial advisor for further assistance. Use the free advisor match service to find a financial advisor who specializes in retirement planning. All you need to answer a few simple questions related to your financial needs, and our matching tool will connect you with 1-3 vetted advisors who best meet your requirements.

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