Understanding Post-Retirement Risks: Strategies for a Secure Financial Future


Retirement is a big life milestone, as it’s when people depart the workplace and start on a new chapter of personal fulfillment and exploration. However, life doesn’t just hit the pause button once you have retired. A number of post-retirement risks and challenges require careful planning and attention.

From outliving your income to a rising cost of living, here are a few things to keep mind in mind for post-retirement risks that you may come across. In this article, we will go over those risks and explore strategies to effectively manage them.

What Is Post-Retirement?

Post-retirement refers to the time when you have transitioned from your full-time career to your years in retirement. This point matters because retirement is a moving target, not just a one-time milestone that you plan for and then it’s done.

In doing research on this period, the Society of Actuaries came up with a number of unique risks that can arise at this point. These post-retirement risks include:

  • Outliving your money
  • Losing a spouse
  • Dealing with healthcare and medical expenses
  • Having declines in physical and mental abilities
  • Keeping up with inflation
  • Weathering economic risks, including market volatility
  • Experiencing unexpected family changes or emergencies
  • Social Security or other retirement-driven government programs seeing changes

Let’s break down these post-retirement risks and go over some strategies to help counter them.

Outliving Your Money: The High Cost of Longevity Risk

One of the most harmful post-retirement risks is the chance of someone outliving their investments and savings. Life expectancy has greatly increased from what it was a half-century ago. Nobel Prize-winning economist William Sharpe has referred to this risk as the “nastiest, hardest problem in finance.”

According to a study by Capital Group and the Society of Actuaries and American Academy of Actuaries, a 65-year-old couple has a 50% chance of one spouse living to 91 and 25% of one living to 96. In other words, retirement can possibly last as long as three decades for some people!

With the prospect of a decades-long retirement, it’s prudent to think about how your money will last throughout your post-retirement years. To help keep this risk at bay, here are a few strategies that you might consider:

Sound Financial Planning

Build out a comprehensive plan that covers essential monthly expenses, potential sources of income (such as Social Security benefits), and relevant investment strategies. You may consider working with an experienced financial professional to create a well-thought-out, balanced retirement strategy that generates income and preserves capital.

Consider Annuities for ‘Longevity Insurance’

Annuities are contracts between a policyholder and an insurance company for a guaranteed income stream for a certain period or for life. Besides Social Security, they are the only thing that can pay a truly guaranteed lifetime income.

Insurance companies pool the risk among thousands of contract holders, which can help you maximize your income with an annuity alongside other income-generating assets. This can be a great source of financial peace of mind and an effective safety net particularly in later years of retirement.

Plan for Conservative Withdrawal Rates

On top of guaranteed income vehicles, you may want to think about your withdrawal strategy. Ideally, your withdrawal strategy ensures that withdrawals from retirement accounts are sustainable over time.

Although it’s not foolproof, the four percent withdrawal rule can be a starting point in deciding what withdrawal percentage makes sense for your portfolio. Working with your financial professional can help you cut down on the premature depletion of funds.

Losing Your Spouse: Getting Through the Turmoil

The loss of a spouse is already emotionally devastating. It can also have big financial consequences, especially if the surviving spouse relied on the deceased partner’s income or benefits.

Nothing will ever replace this loss, but here are a few strategies that can help you and your spouse be financially ready for this risk.

Coordinated Planning

Both spouses or partners should be involved in the financial planning process so that they are equally aware of their plan, their accounts, and the nuances of their plan. That includes understanding beneficiary designations on retirement accounts and life insurance policies. If any life changes happen before something happens to one spouse, the beneficiary designations should be updated as needed.

Filling Gaps with Life Insurance

Having life insurance can provide a financial cushion for the surviving spouse. Among other things, it can help them cover expenses that arise right away and maintain their lifestyle.

There are a number of ways that the life insurance policy can be used to provide a survivor benefit for the surviving spouse, which your financial professional can explain.

Social Security Strategies

Over time, lifetime benefits from Social Security for both spouses can add up to hundreds of thousands of dollars. Of course, there are many options to claim benefits as well. That being said, both spouses can benefit in multiple ways when they coordinate the timing of claiming their benefits (or in other words, not just doing it on their own time).

A coordinated strategy will enable them to maximize Social Security benefits, and it can also help the surviving spouse have a larger benefit when one spouse passes away.

Healthcare Spending: Managing the Risk of Rising Health Costs

Healthcare spending tends to go up as people move further along in their post-retirement years. On that front, people may even face unexpected medical bills that could drain their retirement money.

To mitigate this costly risk in post-retirement, here are a few strategies that you might employ.

Know Your Medicare Coverage Options

Understanding the different components of Medicare, how they work, and what coverage they offer is very important. It’s also good to know about your options beyond Original Medicare.

For instance, Medicare Advantage plans are available at lower cost than other Medicare plans, but their coverage might not be as extensive as other plans. Meanwhile, supplemental insurance plans, known as Medigap plans, can help cover gaps in Medicare coverage.

Health Savings Accounts

If you have a high-deductible health insurance plan, you might be eligible to contribute to a health savings account (HSA). This can be a great place to build up funds for medical expenses on a tax-advantaged basis while you are still working.

In retirement, if you use the money for qualifying medical expenses, you can take out funds from your HSA on an income-tax-free basis. Talk to your financial professional for more information.

Long-Term Care Insurance

Long-term care is a separate area of care from medical care, and it also brings its own cost burdens. One way to keep long-term care expenses at bay is through including insurance solutions in your plan that cover this area of financial planning.

You have multiple options, including long-term care insurance. This insurance covers the costs of assisted living, nursing homes, and in-home care, easing the financial burden of long-term care needs.

If you are worried about getting some benefit in exchange for your premium money, you can also tap certain annuities or life insurance that provide benefits for qualifying long-term care situations.

Changing Mental Function: Safeguarding Cognitive Health

Cognitive decline is a natural part of aging, but it can bring about new challenges for managing finances and making sound decisions. Here are a few things that someone can do to prepare for potential cognitive changes in their post-retirement years.

Appointing Power of Attorney

Power of attorney is one of the most important matters to cover in post-retirement planning. Appointing someone to act as a power of attorney can help ensure that your financial affairs are well-covered, even if cognitive decline does happen at some point.

Designating Healthcare Proxy

When you designate a healthcare proxy for yourself, you specify someone to make medical decisions on your behalf when you are unable to do so. That can be a great help and source of comfort in times when your decision-making ability isn’t what it used to be.

Keeping Things Simple

When you have lots of accounts and bills to cover, it can be confusing for someone who is designated to take care of them for you. Think about ways to simplify your finances now.

Can you consolidate some of your accounts? How about automating some of your monthly bill payments? What else can be done to streamline your finances overall? That can help reduce the possibility of missed bills, mishandled accounts, or financial mismanagement in general.

Inflation: Keeping Up Your Money’s Buying Power

Inflation can undermine the buying power of people’s money over time. To protect against the impact of inflation, you might think about using the following strategies.

Diversifying Your Portfolio

Maintaining a diversified portfolio that includes assets with growth potential that keeps up with inflation, such as stocks, can help counterbalance the rising cost of living. At the same time, including assets that preserve crucial funds and still have promising growth potential can help balance out the growth-oriented assets that are subject to market loss risk.

Fixed index annuities are one such asset that can offer this protection and some growth potential.

Inflation-Adjusting Strategies

Assets like Treasury Inflation-Protected Securities (TIPS) provide a guard against inflation, as the principal value of these products adjusts with inflation. You may also explore fixed-income assets that can be ‘laddered’ for payouts over time, such as bonds, CDs, and fixed-type annuities.

Economic Risk: Weathering Market Volatility

Market ups and downs are just one economic risk that can come up. Other risks tied to market conditions and the economy may also affect retirees and their finances. These risks can have a significant impact on the value of retirement assets.

If you are in the early retirement years, there is also the danger of sequence risk – or putting it simply, suffering investment losses at an unfavorable time.

To be prepared for various financial risks connected to markets and the economy, here are a few strategies to explore.

Relevant Asset Allocation

Again, portfolio diversification can go a long way for helping someone have financial security in retirement. When someone is nearing the window just before retirement and in early retirement, preserving capital and turning lifelong assets into retirement income become top priorities.

An appropriate portfolio asset allocation that aims for those objectives is important. The asset allocation should align with the retiree’s personal risk tolerance and overall timeline for retirement.

Emergency Fund

Maintaining an emergency fund is already important for being able to cover living expenses or unexpected financial hardships. It can provide a buffer during periods of economic uncertainty, which can help clamp down on your need to sell off investments or withdraw money from a retirement account, thereby triggering income taxes, if you do need funds.

Family Risk: Balancing Your Financial Needs with Those of Your Loved Ones

Family matters can be quite intricate, from supporting loved ones to experiencing a change in marital status or the unexpected happening to a family member. While it’s noble to financially assist family members such as adult children or grandchildren, in retirement, it’s good to be careful so as to not overstrain your financial resources. Here are a few things to keep in mind as you consider this unique post-retirement risk.

Maintaining Clear Communication

If you are providing financial assistance to loved ones, open and clear communication is key. Talking with your family about set financial boundaries and expectations can prevent misunderstandings, pressures, and conflict.

Setting Limits

Supporting our loved ones is a big-hearted goal, but it’s also important to balance that with your financial security as well. It’s prudent to establish clear boundaries and hold to them so that your financial well-being isn’t jeopardized in the process of helping them.

Adjusting Course if Change in Marital Status or Family Situation

Sometimes the unexpected happens. People get divorced in later years. Someone becomes a caretaker to aging parents, and she steps out of the workforce in order to meet her commitment. A spouse is incapacitated or has a medical emergency, which brings costly healthcare bills.

While there is no way to anticipate all possibilities, your financial plan should give you flexibility and adaptability to respond to changes if they should arise. Talk to your financial professional for options about how you can prepare financially now for such situations.

Public Policy Risk: Navigating Changes in Government Programs

Changes in government programs, such as Social Security or Medicare, can do a number on your retirement financial security. Worse, these are changes that you might not have much control over. To help you be ready for public policy risks, keep these strategies in mind.

Staying Informed

Remaining informed about public policies affecting you is one of the best courses of action you can take. You can contact your elected officials and give them feedback if any changes arise. Staying informed can also enable you more time to learn and make proactive adjustments to your retirement strategy.

Keeping Flexible in Planning

Building flexibility into your retirement plan gives you wiggle room to adapt to changes in government policies and other factors. Review your plan with your financial professional at least once a year. If any life changes happen, bring your advisor up to speed so that they can account for any adjustments needed there.

The Bottom Line on Post-Retirement Risks

Retirement is a time of new beginnings and opportunities, but it also comes with its own risks and challenges. By proactively addressing these post-retirement risks and other risks, you can have a firm foundation for your post-retirement years and your financial security. Careful financial planning, emotional resilience, and an adaptiveness to changing circumstances will help make a difference toward enjoying a secure, worry-free retirement.

Ask your financial professional about these strategies discussed here and how any other options may help you reach your goals. If you are looking for a financial professional to guide you, many experienced and independent financial professionals are available here at SafeMoney.com.

You can connect with someone by visiting our “Find a Financial Professional” section and request an initial, complimentary appointment to explore a potential working relationship with them. Don’t be afraid to ask any questions and discuss what is on your mind. If you would like a personal referral, please call us at 877.476.9723.

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