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Five Retirement Risks to Avoid


While 79% of Americans told Fidelity Investments in 2022 that they are confident about their retirement planning, 71% also said that they are concerned about the impact of inflation on reaching their retirement goals. Uncertainty can make people feel anxious about retirement. But planning your financial future can also give you greater peace of mind. Here are five retirement risks to avoid. A financial advisor could help you create a financial plan for your retirement needs and goals.

The Social Security program was created as a safety net to help safeguard against senior poverty. But as the purchasing power of Social Security benefits has fallen steadily over 30% since 2000, more Americans are depending on their own savings. Let’s beak down five common risks to avoid when it comes to planning your retirement:

Longevity Risk

Americans are living longer and healthier. And with the IRS raising the average life expectancy to 84.6 in 2022, retirees will face more challenges to spread their assets over a longer retirement.

While this could mean smaller required minimum distributions (RMDs), many retirees will need to look for additional streams of income to grow their portfolios and maintain their buying power.

Tedium Risk

When you plan for retirement, one of the first things many households do is make an anticipated budget. Essentially, this means estimating how much money you need annually. This can be a useful calculation in determining how much you should put into your retirement account each month to hit those targets.

However, while many savers do a good job anticipating their needs, they may underestimate their wants. Variable expenses like dining out, travel and other leisure activities could become expensive. Therefore retirees should be mindful of those lifestyle expenses. Otherwise a narrow budget could put them at risk of living in decades of tedium without the necessary funds to enjoy retirement.

Healthcare Costs

SmartAsset: Five Retirement Risks to Avoid

Medicare is a popular healthcare program. And many Americans believe that once they turn 65, it will offer them free healthcare coverage. However, Medicare is a patchwork of different programs that can cover many health services, but you will still have to pay for some medical expenses out of pocket. Part A can generally covers hospital stays, nursing facilities and even hospice care. While Part B can typically cover out-of-facility services like doctor’s visits and ambulance transport.

You may need private insurance to cover long-term care at a nursing facility. You will also have to find other means of payment for dental and hearing services, including dentures and eye exams. And if you are fortunate to spend your golden years traveling, note that Medicare does not offer you medical coverage abroad.

Poor Asset/Risk Allocation

When saving for retirement, it’s common to overcorrect in one of two directions.

First, some savers become too risk-averse. They understand that losing their retirement portfolio to a market event could be catastrophic, so they invest heavily in the lowest-risk assets they can find, including bonds, annuities, extremely safe funds and similarly situated assets.

This could be a mistake because those investments, while safe, most likely will not grow enough to meet your retirement goals.

Other savers are too swashbuckling and go into retirement big, or even early, so they invest in lots of individual stocks and other relatively high-risk products. Those investors could very well reach their goals or lose everything. High risk can bring big rewards and big losses.

As with all financial matters, the key is balance. Your portfolio needs a good mix of higher-growth assets to ensure you meet your goals, like stocks, combined with lower-risk assets to ensure stability.

You should shift those asset balances as you age, taking on more risky positions when you’re younger and better able to replace losses with your earnings, and taking safer positions when you have fewer working years ahead. Going too safe or too bold can set you up for failure.


SmartAsset: Five Retirement Risks to Avoid

In 2022, the inflation rate peaked at 9.1%, which was the highest since the 1980s. And while this bout of high inflation has declined in 2023, it’s still something that should be part of every retiree’s plan.

When you retire, it’s common to shift your portfolio into safer assets. This is pretty standard advice, because it protects your income from shifts in the market. It’s one thing to be 45 and see your portfolio take a huge hit. You can wait for the market to bounce back. It’s another thing to have that happen in your 70s when you need to keep making withdrawals from that suddenly-depleted account.

At the same time, however, make sure that your account can keep pace with inflation throughout your retirement. A relatively modest rate of inflation can eat away at the value of your money. Even with the Federal Reserve’s target rate of 2% per year, the spending power of a retirement account can fall by around 40% over a 20- to 30-year period if it doesn’t grow enough to keep pace. Make sure your funds are safe, but also make sure you have enough growth investments to offset rising costs.

Bottom Line

Planning for retirement comes with several risks. Make sure you plan for a long life, and anticipate both necessary and lifestyle expenses for your needs along the way. It might mean more aggressive saving today, but you’ll thank yourself later.

Tools for Retirement Planning

  • financial advisor can help you determine the best use of the assets for retirement. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to figure out how much money you will get from Social Security, SmartAsset’s calculator can help you estimate your annual benefit based on your income, birth year and your age of retirement.

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