Retirement PlanningWhat Is The Most Serious Financial Risk Retirees Face?

Retiring involves several risks that are unique to this period of your life. As a retiree, consider all risks when planning for this momentous stage. The risk factors during retirement are not limited to an economic standpoint alone. You must also be mindful of the health risks you face, and have your affairs in order so that your family isn’t burdened as you age.


The most common financial risks that retirees face include the following:



Retirees who limit themselves to being overly conservative with their capital and do not invest for growth and income run the danger of their funds not working hard enough. This can result in savings running out faster which increases the likelihood of having to be reliant on the Age Pension later in life.


Inflation’s Impact


Inflation can impact retirees, as it increases the cost of living and may require you to dip into your capital more than you otherwise would have done as prices increase. One way to safeguard yourself from this threat is to ensure that your investments are structured to deliver income that will keep pace with inflation. Obviously, the number of resources you have to work with as well as income requirements will greatly affect this calculation. Retirement calculators often look at past inflation data to make an educated guess about the necessary capital required for retirement. Yet, these estimations cannot fully guarantee that the upcoming years will provide similar outcomes. 


Time Risk


At retirement, the risk to your capital through sequencing of poor investment returns can severely reduce returns, thus impacting your investments’ market value. For example, a 35% drop in the value of a stock portfolio would then require a 55% appreciation in that portfolio to return to the per pullback value. This of course doesn’t take into account any funds that were withdrawn for living expenses post-the drop. The global financial crisis seriously affected pensioners, whose personal retirement capital and superannuation savings experienced severe losses due to the market decline. Many of these people had to return to work in order to ensure they had a reasonable likelihood of a reasonable retirement.


Unplanned Expenses


It is important to prepare yourself for unforeseen costs that may come with being a retiree. It may eat away portions of your retirement savings and thus decrease future income. Having a reserve cash fund is critical for managing unexpected expenses, emphasizing how vital it can be to plan well before retirement.


Retirees ideally would prefer to maintain their lifestyle and expenditure level while ensuring against depletion of funds throughout their lifetime. However, unanticipated events can pose a challenge to this goal if forward planning is not made. 


Legislation Changes


Legislative changes stemming from a new Government may pose uncertainty to those already retired. In particular, sudden or unexpected alterations to laws could reduce retirement incomes suddenly and drastically. Therefore, you must keep abreast of any proposed or existing changes  that could affect you, so you can plan accordingly and ensure your financial future remains secure.


Life Expectancy


The prospect of exhausting your financial resources due to an extended lifespan is a major concern. Retirees often rely on life expectancy figures to calculate how long their finances may last. However, no one can predict with absolute certainty how long you will need your money to last; these estimates are merely a rough estimation of life expectancy at retirement.


Generally speaking, women live longer than men. This should be considered in your pre-retirement planning. This increased longevity is a trend due to improvements in medical care and lifestyle in general. Looking into the future, you’d have to assume that this trend will continue. Longevity in your family can also be a good indicator of your future lifespan. 


So, What Is The Most Serious Financial Risk Retirees Face?


We discussed the most common financial risks you could face as a retiree. As a retiree, the most common pressing concern is the risk that your savings may not last throughout your lifetime.  Put differently, you may outlive your savings. With people living longer than ever, you must plan for a long retirement and ensure that your investments will last throughout. Additionally, the impact of inflation can affect how much your money is worth over the years, so it is important to understand how inflation affects your investments. Time risk also needs to be considered; certain investment vehicles may have more short-term gains while others offer more growth potential over time. Unplanned expenses and changes in legislation can also affect the finances and should be accounted for.


Investing is a long-term process, so it is important that you get started early and get the advice of professionals in the field to increase the likelihood of you having a comfortable retirement.