Kyle Harpin, CFA, CFP®, Senior Retirement Analyst

Did you know your retirement strategy could be at risk regardless of your life stage? In fact, many of the risks you face earlier in life don’t go away — they change, or new ones are added.

So, what’s the good news? Addressing these risks is typically within your control.

Let’s walk through some of the biggest risks by life stage and review ways to help better insulate yourself from them.

Life stage: Preparing for retirement (more than 10 years until retirement)

Risk: Not saving enough

One of the biggest risks to achieving the retirement you’ve envisioned is not saving enough to pay for it. Boost your savings with the power of three: time, money and return.

  • Time: Start saving now. The earlier you start saving, the more time you have to contribute to and potentially grow your retirement and health savings accounts. As seen in this chart, 10 years can make a big difference. If you’re later in your savings journey, consider working a few years longer.
chart showing annual portfolio returns

Source: Edward Jones. Hypothetical example is for illustrative purposes only and does not reflect the performance of a specific investment.

  • Money: Increase your contributions. Early in your career, you may be able to contribute only enough to achieve your company match. But steady increases can help you toward maxing out your retirement account contributions. In later years, think about making catch-up contributions, if you’re eligible.
  • Return: Take the right amount of risk. Risk and return go hand in hand. Typically, the younger you are, the more risk you can take to earn a return that can help your savings grow.

While each strategy can help you save more, employing more than one of these strategies can have a compounding effect, which can have an even bigger result.

Risk: Unexpected expense or emergency

Unexpected expenses or emergencies can occur at any time. These can impact your retirement savings if you need to pause contributing to your retirement account or, worse, withdraw money from it.

You’ll want to create an emergency fund to cover unexpected expenses and provide a buffer in case you experience a period of unemployment. We generally recommend saving three to six months’ worth of living expenses in a separate account for just these times.

Risk: Premature death or disability

Some risks can be upsetting just to think about. The emotional toll of an untimely loss or injury is hard enough without the financial toll to exacerbate it. These risks are rare, but they can be severe financially.

Consider a life insurance policy with enough coverage to:

  • Pay off liabilities
  • Replace lost income
  • Provide for caregiving
  • Cover final expenses
  • Pay for a child’s education (if desired)

Also, consider an “own occupation” long-term disability policy to replace your after-tax income until you turn 65. These types of policies provide coverage if you’re unable to work in your regular occupation but may allow you to seek employment elsewhere.

Life stage: Transitioning to retirement (within 10 years of retirement)

Risk: Unplanned retirement

According to a recent survey, almost one in three retirees retired earlier than anticipated. The most common reasons were to care for a loved one, layoffs and injuries.1 Regardless of the reason, the result can leave you with more time to live on less in savings — and potentially more expenses you’ll need to cover.

Instead of worrying about an early retirement, plan for it. In addition to an emergency fund and disability insurance, develop a backup plan where you identify expenses you can live without to help offset the effects of an early retirement.

Risk: Sequence of returns

A bad scenario is one in which you experience a bout of market volatility as you’re beginning to withdraw from your portfolio. In the following hypothetical scenario, the portfolio returns are the same, but the order in which they’re experienced is reversed. The early down-market years for portfolio B translated to more than 10% less than portfolio A after just six years.

Chart showing portfolio returns

Source: Edward Jones. Hypothetical example is for illustrative purposes only and does not reflect the performance of a specific investment. Example assumes a starting withdrawal of $20,000 increased by 3% each year for inflation. “Ending portfolio value” rounded.

You can’t control the markets, of course, but you can structure your portfolio to account for a potential downturn close to your retirement. As you’re shifting your investments to a more conservative mix for retirement, consider a CD ladder to provide the first few years of income in retirement. This can also help act as a buffer for your portfolio to recover.2

Risk: Longevity

Living longer than expected can be an enviable yet complex problem. Not only does it increase the chance you’ll outlive your portfolio, but you’ll also likely need to plan for more long-term care expenses.

You can help your retirement income endure by getting more of it from guaranteed sources. Delaying taking Social Security can bump up its payment. Additionally, an annuity with guaranteed lifetime benefits might also help.3 For long-term care expenses, consider purchasing insurance4, setting aside savings or using a combination of the two.

Life stage: Living in retirement

Risk: Inflation

Near-term inflation is a factor to consider. At just 3%, inflation can increase a grocery bill from $150 to over $350 in 30 years.

You can’t control inflation, but you can lower your personal inflation rate by choosing generic over name brands, for example. You can also fight inflation with your portfolio.

Although you’ll likely be investing more conservatively during retirement, aim to take the right amount of risk by incorporating some growth investments. These can help counteract the effects of inflation over time.

Risk: Incapacity and estate planning

According to retirees, the most common and disruptive challenge they’ve faced is the loss of a loved one.5 Make sure your loved ones know your desire for care and final wishes through your estate and incapacity plans.

Review and update your wills, trusts, powers of attorney, health care directives and beneficiary designations on a regular basis. Appoint fiduciaries you trust to carry out your wishes if you’re not able to, and make sure they’re willing and able to accept those roles. You don’t have to share exactly what’s in your estate plan, but you should let loved ones know where to find it if needed.

Risk: Declining investment values

When you’re withdrawing from your portfolio, investment losses can feel especially bad. Here’s what to do if markets become volatile:

  • Pause before changing investments — Ask yourself, what’s changed? If your goals and risk tolerance haven’t changed, then making a big change to your investments could make matters worse.
  • Adjust your spending — In years when the market is down, not increasing your withdrawals for inflation can improve the likelihood your portfolio lasts through retirement by 20%. An additional one-time spending cut of 10% can improve your portfolio’s odds of success by 40%.6
  • Spend from your cash — Withdrawing cash and redeeming CDs for your near-term income can give your growth investments more time to recover.

Your financial advisor can help

Many risks are unavoidable, but changes to address them are often within your control. Talk with your financial advisor about your biggest risks. Together, you can put a strategy in place to address them so you can focus on the opportunities ahead.

Kyle Harpin, CFA®, CFP®

Kyle Harpin is an analyst on the Client Needs Research team, which creates advice and guidance related to preparing for retirement, living in retirement, saving for education, estate planning and protecting financial goals.

Kyle graduated summa cum laude from the W.P. Carey School of Business at Arizona State University with a bachelor’s degree in finance. He is a CFA® charterholder and a member of the CFA Institute and the CFA Society of Nevada. Kyle also holds the CFP® designation.

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Important information:

1 Edward Jones/Age Wave, Resilient Choices, 2023.

2 CD ladders aren't for everyone so work with your financial advisor to see if one aligns with your investment objectives, risk tolerance and financial circumstances.

3 Annuity guarantees are made by the issuing life insurance company so it's important to talk with your financial advisor to decide if they are suitable for you.

4Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P. and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C. California Insurance License OC24309.

5 Edward Jones/Age Wave, Resilient Choices, 2023.

6 Assumes a hypothetical $1 million portfolio invested in 50% stocks and 50% bonds with a decline of 20%. Compares three portfolio scenarios:

1) No spending adjustments are made to initial 4% withdrawal rate; 2) Spending is not adjusted for inflation in years after a market decline; 3) Spending is cut one time by 10% and then not increased for inflation in years after a market decline. Hypothetical example is for illustrative purposes only and does not reflect the performance of a specific investment.