Retirement income risks: How to avoid them

Woman learning about risks associated with retirement income and how to avoid them

Once you retire, you'll need to shift gears—from saving money to managing the income from your retirement savings. The challenge is withdrawing enough money to cover your needs, without risking your long-term income.

Because your needs and income sources may change in retirement, it’s important to develop a personal retirement income strategy.

But how to do it? Begin by understanding—and planning for—five key retirement income risks.

Five key retirement income risks

1. Longevity

Advances in health care mean that many of us are living longer—which could increase our expenses in retirement. The average life expectancy for a 65-year-old is about 84 (males) to 87 (females)1—so your retirement income may need to last 20 years or more.

2. Inflation

Your annual income needs could more than double over the course of your retirement. For instance, let's say you need $50,000 a year in retirement. In 30 years, if inflation averages 2.5% a year, you may need more than $100,000 a year to maintain the same standard of living.

3. Healthcare costs

Health care can be one of the biggest expenses in retirement. A couple who retires at age 65 in 2015 may need more than $266,000 to cover health care expenses in retirement, according to one study by HealthView Insights.2

4. Investment risks

Poor market performance early in your retirement can significantly impact how long your savings will last. Strategic asset allocation (dividing your savings between different investments from various asset classes) can help. And options like annuities can create retirement income that isn't exposed to market risk.*

5. Public policy

Increases in taxes, new types of taxes, evolving health care reform, or changes in programs like Social Security, Medicare, and Medicaid can have a big impact on your income in retirement. Of course, shifts in public policy are out of your control—but you can help yourself by creating a strategy for your personal situation.

By taking a realistic approach to your retirement income planning—and accounting for likely risk factors—you can help ensure that your retirement savings will last.

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* Asset allocation and diversification doesn’t do not ensure a profit or protect against loss. Annuity  guarantees are based upon the claims-paying ability of the issuing insurance company.

1 https://www.ssa.gov/planners/lifeexpectancy.html

2 http://www.hvsfinancial.com/PublicFiles/Data_Release.pdf