Retirement risks and how to manage them

The risk of outliving your retirement savings—also known as longevity risk—has become one of the biggest concerns for retirees. As people live longer, even a well-funded nest egg can be depleted if not managed wisely.

To help ensure your money lasts as long as you do, consider these key strategies:

• Explore annuities. They can provide a steady income stream for life, helping protect against the risk of outliving your assets. Some annuities also offer riders that guarantee a minimum payout, adding an extra layer of security.
• Consider delaying Social Security benefits. Waiting until full retirement age or beyond can help to extend your lifelong income and enhance your financial stability in later years. That's because the longer you wait to start collecting, the bigger your benefit will be. You can learn more through our resources on the fundamentals of social security and maximizing social security benefits.

You can explore more insights into the longevity of your retirement savings.

Working with a financial advisor can provide you with a sustainable drawdown strategy for your savings and help you decide whether annuitizing—converting a portion of your portfolio into an income stream—makes sense for your situation.

Market volatility—simply put, the ups and downs of investment returns—can pose significant risks to retirement accounts, especially when downturns occur just before or during retirement. A sharp market decline at the wrong time can shrink your savings quickly, and if you're withdrawing funds to live on, it may force you to sell investments at a loss, making it harder for your portfolio to recover.

To help manage this risk:

• Maintain a diversified portfolio, spreading your investments across different types of assets—like stocks, bonds, and cash. This means you're not relying too heavily on any one type. Your asset mix should match your goals, how long you plan to spend in retirement, and how much market fluctuation you're comfortable with. For money you'll spend in retirement, a more conservative mix of investments may help cushion the impact of market swings. Pairing this with a systematic withdrawal strategy can further support long-term stability.
• Hold a variety of retirement account types, including tax-deferred and Roth accounts. Taxable accounts can also be helpful for savings. This can give you tax flexibility over the course of your saving and retirement journey.

For more insights, explore our resource on navigating market volatility with confidence.

A Vanguard financial advisor can customize a financial plan for your specific needs and goals, and make sure your portfolio is prepared for all kinds of future market conditions.

Inflation is the gradual increase in prices over time, which means each dollar you have buys a little less than it did before. This erosion of purchasing power is one of the most significant retirement savings risks you may face. If you're nearing or in retirement, even moderate inflation can take a toll: for example, $100,000 today would have the spending power of about $67,000 in 20 years with a steady 2% annual inflation rate. That's why it's important to understand inflation and how it can affect your investments.

Since retirees often rely on fixed income sources, rising costs for essentials like food, housing, and health care can strain their budgets. To help protect against this, consider investments that have historically kept pace with or outpaced inflation, such as stocks, real estate, or Treasury Inflation-Protected Securities (TIPS), which adjust their value based on inflation changes.

Maintaining a diversified portfolio that includes these assets can improve your resilience over time.

As life expectancy continues to rise, so does the financial challenge of funding health care throughout retirement. Living longer means you'll likely need more savings—not just for daily living, but especially to cover the growing possibility of needing long-term care. For early retirees, there's an added concern: a potential gap of several years before becoming eligible for Medicare at age 65.  You can plan ahead to bridge this gap with options like private insurance, COBRA, or a plan through the health insurance marketplace.

Once you qualify for it, Medicare helps, but it doesn't cover everything. Many retirees are surprised to learn that services like dental care, vision, and hearing aids, for example, are either limited or excluded. Consider these typical health care expenses in retirement:

• Premiums for Medicare Parts B and D, and supplemental (Medigap) plans.
• Out-of-pocket costs such as deductibles, copays, and non-covered services.
• Prescription drugs not fully covered by insurance.
• Dental, vision, and hearing care.
• Long-term care. Whether in-home assistance or facility-based care, nearly 70% of people turning 65 today will need some form of long-term care in their lifetime.

To prepare, consider contributing to a health savings account (HSA) if you're eligible. These offer triple tax advantages and can be used for qualified medical expenses in retirement. Long-term care insurance is another tool that can help protect your savings from the high cost of extended care.

For more information, explore our detailed guide on how much retirement health care costs.

A Vanguard financial advisor can help you get a personalized estimate of your future health expenses and guide you in selecting the Medicare plan that best fits your needs.

Aside from market conditions, there are changes in laws and regulations such as changes in rules governing health coverage, retirement savings or benefits, or estate planning that can affect your financial planning.

Strategic planning for uncertainty means maintaining flexibility—so decisions can be adjusted as laws, rules, and personal circumstances change. In the meantime, focus on what you can control: maintaining a disciplined, long-term strategy aligned with your goals.

Unexpected events such as job loss, divorce, or a family emergency can have a significant financial impact, especially in or near retirement. To prepare, it's important to build flexibility into your spending plan and consider additional insurance coverage, such as disability or umbrella policies, to help absorb these shocks.

A financial advisor can help by applying a dynamic spending approach to your retirement plan— adjusting how much you withdraw each year based on your current needs and how your investments are doing, so you can stay flexible and avoid running out of money.