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Risks Retirees Face

Sundar Mohan Rao

WE’VE ALL HEARD THE maxim that “without risk, there’s no reward.” Over the years, we’ve all taken countless risks—big and small, financial and otherwise—to get to where we are today.

Every activity has a risk associated with it, and that includes retirement. It’s best to be aware of these risks and, when prudent, take steps to limit them. Here are nine risks that retirees face.

1. Health. Even if we’re fortunate to enjoy a long, active retirement, our health may not be great in our later years. Alternatively, even if our own health holds up, our spouse may have medical issues.

On top of that, we’ll likely face escalating health costs as we age. I’ve watched a friend move from independent living to assisted living to a nursing home to memory care. Each move was progressively more expensive. Good planning is needed to manage such life-changing events.

2. Longevity. I met a retiree at a party who said, “My mother passed away at 70 and my father at 72. The chance of me reaching my 90s is virtually nil. My plan is to spend more and enjoy life while it lasts.”

A wise move? No matter what our family health history, it’s risky to assume we won’t enjoy a long life. And even if we don’t live to a ripe old age, our spouse may.

3. Market downturns. While the stock market has returned an average 10% a year over long stretches, a major drawdown of 20% or more could happen at any time. When we were young, we had many years to recoup such losses. But once we’re retired and drawing on our portfolio for spending money, our time horizon is often considerably shorter. A balanced portfolio of stocks and bonds can help reduce this risk.

4. Spending. We can’t control how the financial markets perform, but we can control our own spending—and avoid the excesses that can put our retirement at risk. My advice: Prior to buying anything, consider whether it’s a need or want.

5. Family. Our retirement plan could be derailed by a host of family issues, whether it’s divorce, the need to support adult children, paying for children’s or grandchildren’s college costs, the death of a spouse and estate-planning mistakes.

6. Inflation. Most employer pensions aren’t indexed to inflation. Our pension might seem ample when we first retire. But a decade later, the buying power will be much reduced. As with many risks listed here, ample savings are likely our best defense.

7. Scams. Thieves are using increasingly sophisticated techniques to target seniors. We’ve all heard horror stories of investors losing huge sums to trickery and to get-rich-quick schemes. You no doubt recall the saying, “If something sounds too good to be true, it probably is.” Those words are worth bearing in mind.

8. Known unknowns. Think about threats such as flooding, fire, hurricanes, long-term-care costs, accidents and lawsuits. We know these are all possibilities, but we don’t know when or if they’ll come to pass. Still, we can prepare.

9. Unknown unknowns. Consider the recent pandemic. The world was unprepared and billions of lives were turned upside down. We can’t make specific preparations for threats we’re unaware of, but we can make sure our financial life can withstand large, unforeseen shocks.

I’ve spent time thinking through the above risks, and I believe it’s helped me to make more rational financial choices. Maybe we should all take our cues from the quote that’s sometimes wrongly attributed to Mark Twain: “I am an old man and have known a great many troubles, but most of them never happened.”

Sundar Mohan Rao retired recently after a four-decade career as a research and development engineer. He lives in Tampa in a 55-plus community. Mohan’s interests include investing, digital painting, reading, writing and gardening. Check out his earlier articles.

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