Retirement Risk: How to Prepare and Manage

Steven Neeley, CFP® |


Retirement is often perceived as a well-deserved break after decades of hard work, an opportunity to enjoy life without the pressures of a nine-to-five job. However, a fulfilling retirement requires meticulous planning, specifically because various risks can jeopardize your financial stability during these years. From inflation eating away at your savings to market fluctuations reducing your investment values, retirement is fraught with uncertainties. In this article, we will delve into eight types of retirement risks and discuss strategies for preparing and managing them.

8 Retirement Risks

While there may be a myriad of risks that could potentially impact your retirement,
understanding the primary ones is crucial for effective planning. The eight significant financial risks that every retiree should be aware of are: Inflation Risk, Market Risk, Interest Rate Risk, Behavioral Risk, Tax Risk, Liquidity Risk, Longevity Risk, and Sequence Risk. Let’s delve into each of these to provide a clearer picture.

Inflation Risk

Inflation is the silent killer of retirement savings. It erodes your purchasing power over time, meaning the same amount of money will buy less in the future. To mitigate this risk, consider investments that tend to outpace inflation like stocks or real estate. Treasury Inflation-Protected Securities (TIPS) are also an option, as they adjust with inflation rates.

Market Risk

Market risk refers to the possibility of your investments losing value due to overall market downturns. It’s a risk inherent in any form of investment and can be particularly devastating if it occurs near the start of your retirement. Diversifying your portfolio across different asset classes can help to minimize this risk. Additionally, consider shifting to more conservative investments as you near retirement.

Interest Rate Risk

Interest rates have a significant impact on the performance of bonds, mortgage rates, and other fixed-income investments. When interest rates rise, the market value of existing bonds drops. Conversely, low interest rates can result in reduced income from these investments. Laddering your bond investments and keeping a mix of short-term and long-term bonds can provide some protection against interest rate fluctuations.

Behavioral Risk

Behavioral risk stems from the emotional and psychological factors that influence investment decisions. The urge to sell when the market is down or buy when it’s up can lead to poor outcomes. To manage this risk, consider working with a financial advisor and sticking to a well-thought-out financial plan.

Tax Risk

Tax laws are subject to change, and modifications in tax codes can significantly affect your retirement income. One way to prepare for this is to diversify your tax exposure by investing in tax-efficient funds, Roth IRAs, and other tax-advantaged accounts. Being aware of the tax implications of your investments can save you money and offer increased financial security.

Liquidity Risk

Liquidity risk arises when you cannot easily convert assets to cash without a substantial loss in value. This can be an issue if unexpected expenses crop up during retirement. Having a cash reserve or a liquid asset as part of your investment portfolio can offer a safety net in such scenarios.

Longevity Risk

Longevity risk is the risk of outliving your savings. This is increasingly relevant as life
expectancies continue to rise. To counter this risk, consider annuities that provide a guaranteed income stream, or work part-time during the early years of retirement to reduce the drain on your savings.

Sequence Risk

Sequence risk is the danger of experiencing poor investment returns early in retirement, which can severely impact the sustainability of your savings. To mitigate sequence risk, maintain a diversified portfolio and consider adopting a more conservative withdrawal strategy during downturns.


Retirement planning is not just about saving enough; it’s also about managing risks to ensure a stable and fulfilling post-career life. By understanding and planning for risks like inflation, market fluctuations, interest rates, behavior, taxation, liquidity, longevity, and sequence risk, you can better prepare for a secure and enjoyable retirement.

By taking proactive steps and seeking professional guidance, you can navigate the various challenges that come with this life stage, turning risks into manageable hurdles rather than insurmountable obstacles.

Legal Disclosure

This article is for informational purposes only and is not intended to provide, and should not be relied upon for investment, financial, legal, or tax advice. The content is general in nature and does not take into account your specific investment objectives, financial situation, or particular needs. Any information or opinions contained herein are not intended to constitute a solicitation or offer to buy or sell any securities or other financial instruments. Past performance is not indicative of future results.

The author of this article is a Registered Investment Advisor. However, this article does not constitute an offer to provide personal investment advice. The views expressed in this article are the author’s own and do not necessarily reflect the views of any advisory firm with which the author may be associated. It is crucial to consult with your own qualified financial advisor, tax advisor, or legal counsel before taking any action based on the information provided herein. Investing in financial instruments involves a high degree of risk and may not be suitable for all investors. Before making any investment decisions, prospective investors should carefully consider their investment objectives, level of experience, and risk appetite.

The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with investing in financial instruments and seek advice from an independent financial advisor if you have any doubts.

The author has taken reasonable precautions to ensure the accuracy of the information contained within this article. However, the author, advisors, agents, and any affiliated parties make no representations or warranties as to the accuracy, completeness, or suitability of this information for any purpose, and disclaim all liability for the use of this information for any purpose.

Nothing in this article should be considered a solicitation or offer to buy or sell any specific products or securities. Furthermore, this article should not be considered as an endorsement or recommendation of any companies, products, or services mentioned within.

Remember, investing in private placements and other similar investments involves significant risks, which include, but are not limited to, illiquidity, lack of dividends, loss of investment, and dilution, and it should only be done as part of a diversified portfolio. Your capital is at risk.

Always conduct your own due diligence before making investments.