Understanding the Key Risks in Retirement

Planning for these risks can improve the odds of a successful retirement

Understanding the Key Risks in Retirement, continued from March

Longevity Risk

It is no secret that people are living longer in retirement today than at any point in history. Advances in medicine and technology have had an impact on aging within our society. However, nobody wants the success of their retirement plan to be contingent on an early death. Many people underestimate how long they will live, increasing the likelihood of outliving their assets. Married couples have unique issues to consider – how will things change when either spouse outlives the other? How will income needs and income sources change for the surviving spouse? Lifetime income strategies, insured solutions and a sound asset allocation approach are ways to protect against this risk.

Health Care Risk

Inflation on health care costs coupled with living longer in retirement can spell disaster if not properly managed. Compounding this issue further is the rate of inflation on items such as prescription drugs and preventive care, which have historically exceeded the 3% general rate of inflation mentioned earlier.

According to a 2015 Fidelity Investments study, a 65-year-old couple would need $245,000 to pay for medical expenses throughout retirement, not including long-term care expenses. Genworth Financial’s 2016 Cost of Care survey revealed annual long-term care costs ranging from $43,000 for assisted living facilities and home health care, all the way up to $82,000 or more for nursing home care. These are significant expenditures which show no sign of decreasing. Traditional solutions such as Medicare and Medicaid are helpful, but they aren’t always enough to meet an individual’s needs. This is where strategies such as private insurance coverage and appropriate savings strategies come into play.

Other Risks

Beyond these four risks, there are other key factors that you must be prepared for in retirement. These include things such as legislative or tax code changes, a change in family status (divorce or remarriage) or unexpected demands on your resources (supporting family members, such as children, grandchildren, parents or others).


A sound retirement income plan may not have solutions for all of these potential issues and risks, but understanding what might stand in your way and taking action to mitigate their effects will be critical to the long-term sustainability of your plan. Your Baird Financial Advisor will help you identify what risk factors might play a more important role in your retirement and will build a plan with you and your family’s long-term success top of mind.

Article provided by Rebecca Ross, Vice President and Financial Advisor at Robert W. Baird & Co., member SIPC. She has 34 years of financial services industry experience and can be reached at 239-541-9090 or rross@rwbaird.com.