6 Key Risks to Retirement (Part 1)

Benjamin Haas |



For many of my clients, the topic of retirement comes with many different emotions. While it can be exciting to think about freedom of time and the lack of an alarm clock going off first thing in the morning, there are many people that carry a fair amount of anxiety when considering the financial stress of ‘not having a paycheck.’ Even if things look promising today, there is no predicting the future, and the certainty of uncertainty can be just as terrifying as feeling unprepared to begin with.

This series aims to start the discussion on what the key risks to retirement are, and how a plan might help combat the anxiety that comes with each risk.

Health Care Needs According to a recent study done by the Insured Retirement Institute, a healthy 65-year-old male can expect total cost of health care expenses, including premiums, for the rest of his lifetime to top $350,0001. The average 65-year old female? $417,0001. Recent studies also suggest that per capita health care expenses have increased close to 6% annually2. One needs to be prepared for these potential expenses by planning ahead for how they will be covered.

Market Volatility Many pre-retirees and retirees become more weary of investment risk as the age. And perhaps for good reason. The largest intra-year drop in the S&P 500 (an equity index often reported) from a peak to a trough has averaged 14.7% since 19803. The growing global economy and the ever-increasing speed of global capital flows have made the markets more volatile than ever. All this leads to an extremely emotional investing public. And emotional investing often leads to poor trading timing. Hence market volatility can be particularly damaging to a portfolio in retirement.

Inflation  It can be damaging to a portfolio in retirement too. Why is inflation a problem? Because inflation can deteriorate the buying power of your savings. If the returns on your investment or cost of living increases on Social Security or your pension are less than the stated inflation, your buying power is going down. The 10 year average of the CPI (Consumer Price Index) is 2.6%4. True CPI may be much higher if you include food and energy prices! Inflation is a very serious risk, especially for those on a fixed income.

Join me next week for additional risks to your retirement.


1The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. http://www.irionline.org/news/article/id/589

2Source: Department of Health and Human Resources. National Center for Health Statistics. Health, United States, 2012: With Special Feature on Emergency Care. Hyattsville, MD. 2013 http://www.cdc.gov/nchs/hus/contents2012.htm#018.

3Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management, Data as of 6/30/13.

4Source: United States Department of Labor, Bureau of Labor Statistics ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

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