Dave’s Top 10 Retirement Risks

Dave’s Top 10 Retirement Risks

Dave’s Top 10 Retirement Risks

Dave’s Top 10 Retirement Risks

Welcome to Dave’s Top 10 Retirement Risks. These risks, at the very least, need attention prior to retirement. For each of these risks, consider the specific retirement risk and how to manage them.

Accumulation is the easy part of personal finance, yet that is all that is talked about in the popular media. Retirement is hard! Or at least Retirement Income Planning takes some strategies for retirement.

Foundational to Retirement Income Planning is risk mitigation. Not only do you have to find a way to convert your nest egg into cash for the next 30+ years, you must consider and mitigate known risks.

What are those Risks?

Dave’s Top Ten Retirement Risks

  1. Stuck in Accumulation Mode

Retirement is all about turning assets into income. How do you convert your assets into money to spend? Issues that need consideration: long term cash flow planning, spending shocks, liquidity, and especially important moving on from the accumulation mindset.

  1. Balance and Rebalance

Portfolio risk and market risk. You must be invested to hedge for the future, but bonds don’t pay enough to live on.

  1. The Alternative to a Long Life

Longevity risk is better than the alternative! Some say longevity risk is the only risk, as all other risks are exacerbated by time. Longevity is more complicated than that! The best hedge against longevity.

  1. The Tax Man Cometh

Taxes are the largest expense in retirement. Tax efficiency, tax diversification, and future tax rate policy risk. Avoid the IRA tax bomb. Partial Roth conversions are an important and underutilized strategy.

  1. Illness and Wealth

Health care and Long-Term Care compete with your heirs for every dollar. The dividing line: leave money for children or charities, or pay the healthcare monster that must be fed.

  1. Spousal Smousal

No one wants to talk grey divorce or death of their spouse. Let’s talk emotions and how either can decimate your finances.

What about the Widow/Widower Tax Penalty, where the death of the first spouse may lead to financial ruin of the surviving spouse?

  1. Cornerstones

Both sleeping dragons: Social Security and Inflation Risk. Maximize retirement’s best benefit and watch out for the widest crater in the road. Delaying social security with Bridge Assets.

  1. Housing and Real Estate Risk is Local

Real estate is local, as is the risk. Deal with this large asset and thrive. The much aligned reverse mortgages can be effective tools especially if implemented early or prior to a down market.

  1. Loss of Interest in Finances… or Worse

Loss of ability… cognition decline; it will happen to all of us. Perhaps even worse, poor behavior or emotional investing! Understand what you can control!

  1. SORR with the Eagles or Crash and Burn Early?

Sequence of Return Risk is, in my estimation, the largest challenge soon-to-be retirees face currently. High market valuations? Low bond yields? Yikes, watch out for making paper losses real at a permanent cost to your retirement. Buffer Assets can be used to avoid Sequence Risk.

What is NOT on the List

Market Risk

What? I don’t think Market Risk is a reasonable risk for a retiree. If you have risk based upon your investments, why are you still in the market? De-risk! Money in the stock market should be for the future. If the future tells us anything—and it doesn’t—it’s that investing is not risky. If you spend enough time in the market—at least a decade if not more—you will win. Remember, history rhymes!

Annuities are a bad word, although misunderstood. If you have market risk, think safety first and annuitize a portion of you nest egg.

If the market is bad enough for long enough, everyone—not just retirees—will suffer. This, a relapse of the great depression, is not market risk—it is country risk. Countries do fail, and the United States of America will fail at some point in the future, though not soon! And when it does, it is an unpredictable world we live in where you have much more than stock market risk to worry about!

Legacy Risk

You can have a goal to leave a legacy, you can even plan for it. But I don’t accept that failure to leave money to your children or church is a failure of retirement planning. The world will continue on if you bounce the check to the undertaker!

Overspending Risk

If you made it to retirement, you can make long term goals and stick to it. Unexpected costs come up, but you have dealt with those your whole life and still made it to the finish line.

Income Loss Risk

Um, you are retired. What income?

Financial Advice Risk

This is a big one. Make sure you have a advice-only, fiduciary financial planner. Understand how your advisor gets paid. If you don’t, ask! And ask to see all the fees paid in the last year. There is a greater risk that your advisor will hurt you than help you unless you understand BOTH his or her incentives and who they work for. Most “advisors” work for their company, not for you. Their priority is therefore to their company, not to you. What a shame.

Legislative Risk

This is why you have a planner. Congress and the President are apt to mess things up. Like with the Secure Act. The Stretch IRA is on the Chopping Block: how does permanent life insurance stack up to Roth conversions? What about a Charitable Remainder Trust vs. the 10-year pseudostretch? Watch out for annuities in your 401k! How does a 10-year pseudostretch IRA compare to a true Stretch IRA?

Risk of Multiple RISKS!

A single risk will often not sink your plan. It is risk of multiple risks that you need to be wary of.

Dave's list of retirement risks

Source Vanguard

Summary Dave’s Top 10 Retirement Risks and how to manage them

Start at the beginning. Determine your goals!

Next, understand the risk you face, assess resources, and make a plan to mitigate those risks. This is not simple or easy, but a secure retirement awaits at the end of the process.

See you at the finish line!