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Dream Again

Five retirement income risks and how to help avoid them

Understanding risks you may face in retirement has never been more important.

The days of relying solely on pension plans and Social Security to meet retirement income needs are virtually in the past. Employer-provided health coverage may not be available in retirement for many. And today people are living longer — and carrying more debt — than in previous generations.

Those are all reasons why it's important to develop a personal retirement income strategy. After all, once you retire, you'll need to shift gears — from saving money to managing the income from that savings. The challenge is withdrawing enough money to cover your needs without depleting your savings.

Understand—and plan for—these five key retirement income risks

  1. Longevity. The good news is that improved healthcare may extend your life. But, it could also increase your expenses in retirement. Today, there's a 25 percent change that the husband or wife of a married couple age 65 will live to age 95[1].
  2. Market performance. Poor market performance early in your retirement can significantly impact how long your savings will last. Asset allocation — dividing your savings between different types of investments — can help you manage market risk. Other options — such as annuities — can also help create retirement income that isn't exposed to market risk.
  3. Withdrawal rate. Many financial professionals suggest withdrawing 4 to 5 percent or less from your retirement savings annually (adjusted each year for inflation). The Principal offers free tools and resources to help you determine if that guideline may be right for you.
  4. Inflation. Inflation can cause your annual income needs to more than double over the course of your retirement. For instance, let's say you need $50,000 a year at retirement to live. If inflation averages 2.5% a year, you'll need more than $90,000 a year in 25 years to maintain the same standard of living.
  5. Healthcare. Healthcare can be one of the biggest expenses in retirement. A couple who retired at age 65 in 2010 may need $255,000 to cover healthcare expenses in retirement, according to one study by the Employee Benefit Research Institute. Retiring at age 65 in 2020, a couple may need $427,000 to cover the same expenses.[2]

Talk to a professional

Find out how a financial professional or advisor can help.

More articles from the introductory issue of The Principal Retirement NewsletterSM

Download the entire introductory issue (PDF: 860 KB)


Annuity 2000 Mortality Table, Society of Actuaries Committee on Life Insurance Research
Savings needed for Medigap premiums, Medicare Part B and Part D premiums and out-of-pocket drug expenses. Assumes no employment-based retiree health benefits. Employee Benefit Research Institute, December 2010,

No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining value.


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