After years of working hard and saving diligently, you may finally be thinking about retiring. But even if you’ve amassed a hefty nest egg, unforeseen circumstances could seriously eat away at your savings.
Market volatility, high inflation, the rising costs of health care, and other challenges could put you at financial risk during your Golden Years. But fortunately, these can be met with careful planning. So let’s take a look at some of the biggest threats in retirement and how to address them.
Market Volatility
Nobody knows what’s going to happen in the market. This is why it’s important to always maintain a well-diversified portfolio. It’ll prevent you from relying too much on one asset type that may suffer severely during a market decline.
And as you move closer to retirement, you may want to emphasize generally safer investments such as bonds, bond funds, and money market funds to protect the capital you’ve accumulated. But you’d still need to keep your portfolio diversified with growth-oriented assets such as stocks, mutual funds, and exchange-traded funds (ETFs). Some advisers recommend you subtract your age from 120 and use the result as the percentage of your portfolio that should be allocated to equities such as stocks and ETFs.
There are also plenty of online tools that could recommend an asset-allocation mix based on your investment goals, risk tolerance, and age.
Longevity
One of the biggest fears for retirees is outliving their savings. One way to tackle this is by strategically drawing down your retirement savings.
Some advisers recommend you divide your retirement savings into buckets. The first bucket should cover necessities such as housing, food, and utilities for the first few years of retirement. And it can be filled with highly liquid investments such as high-yield savings accounts, certificates of deposit (CDs), and short-term bonds. Bucket two can be used to cover expenses from year three to 10. And the third bucket can be used to cover years 11 and after. These can be filled with growth-oriented investments from intermediate bonds to stocks, ETFs, and mutual funds.
The idea here is to begin drawing down from generally safer and liquid investments while giving other asset types such as stocks and ETFs time to grow.
This strategy could also help you avoid sequence of returns risk. That’s the risk of beginning to draw down your retirement savings during a sharp market downturn. It could devastate portfolios by locking in losses and leaving less capital to benefit from future gains when the market recovers. But by tapping your first bucket with cash and cash-like assets, you can cover your needs without touching assets like stocks and ETFs, which could greatly benefit during a market recovery and potential bull markets.
You can also look into other withdrawal strategies such as the 4 percent rule and the guardrails approach. The latter essentially involves withdrawing less when the market is down and more when the market is up, while setting up minimums and maximums or guardrails.
A financial adviser can work with you to develop a drawdown strategy based on your unique needs and circumstances.
Taxes
One of the biggest threats to your retirement savings could be taxation. That’s why some advisers recommend you also diversify your savings across different account types with different tax treatments.
You could have savings in taxable brokerage accounts, tax-deferred accounts such as traditional IRAs, and tax-free accounts such as Roth IRAs.
Some experts recommend you begin withdrawing retirement funds from taxable brokerage accounts first. Assuming you’ve held onto the assets in brokerage accounts for longer than a year, you may face the favorable long-term capital gains tax rates. These are generally lower than ordinary income tax rates.
And by starting with taxable accounts, you give tax-deferred and tax-free accounts more time to grow.
Tax-deferred accounts are a great way to accumulate savings and benefit from tax breaks during your working years. But withdrawals from these accounts are taxed as ordinary income and rates can be as high as 37 percent. And because of required minimum distribution (RMD) rules, most people would need to begin withdrawing money from these accounts once they reach age 73. It doesn’t matter if you need the money or not. RMDs increase your taxable income. And if those RMDs are large enough, they can push you into a higher tax bracket. They can even increase taxes on your Social Security benefits and raise the premiums on Medicare Part B and Part D.
But you can also convert all or part of the funds in your tax-deferred account such as a traditional IRA into a Roth account such as a Roth IRA. RMDs don’t apply to Roth accounts.
However, you’d owe ordinary income taxes on the amount converted.
But some advisers recommend you conduct a Roth conversion between early retirement and before you reach RMD age. At this point, you’d likely be in a low tax bracket and can minimize the tax impact on the conversion.
Plus, withdrawals from a Roth account are tax-free as long as you’re at least 59 1/2 years old and the account has been open for at least five years.
Of course, these strategies won’t work for everyone. But it can give you some ideas. You can consult a dedicated tax adviser to figure out the most tax-efficient drawdown strategy based on your unique circumstances and goals.
Inflation Risk
Not too long ago, COVID-19 struck the world seemingly out of nowhere and sent shockwaves through the global economy.
But during the recovery, inflation climbed 8 percent. This was the highest rate seen since the oil shock of the early 1980s.
But even minimal inflation can seriously diminish the spending power of your savings.
For instance, $100,000 today would generate the spending power of around $67,000 in 20 years with a 2 percent annual inflation rate, which is what the Federal Reserve is generally comfortable with.
But here, too, a well-diversified portfolio can help. You can consider diversifying your portfolio with assets known to historically keep pace or outpace inflation such as stocks, ETFs, real estate investment trusts (REITs), and Treasury inflation-protected securities (TIPS).
Health Care Costs
The fact that people are living longer may not only raise the threat of longevity risk, but it can also put you at risk of skyrocketing health care costs.
According to a recent study by Fidelity Investments, a 65-year-old retiring today could expect to spend an average of $172,500 in health care costs throughout retirement.
But there are a few ways you can prepare for the rising costs of health care.
You could consider pairing a high-deductible health plan (HDHP) with a health savings account (HSA). An HSA allows you to make tax-deductible contributions. Plus, money in an HSA grows tax-free. And withdrawals are also tax-free as long as you use it on qualified medical expenses. Funds can even be used tax-free to pay premiums on Medicare Part B, Part D, and Medicare Advantage (Part C). So it can be beneficial to maximize your HSA and not touch the funds until retirement.
And while Medicare can be greatly effective, it won’t cover everything. But you can consider a Medigap policy if you have Original Medicare (Part A and Part B).
These private insurance policies can cover expenses not covered by Original Medicare, such as copayments and deductibles.
The Bottom Line
Even after saving aggressively during your working years, your savings may be diminished by unforeseen threats such as market volatility, skyrocketing inflation, and the rising costs of health care. But you can take steps now to defend your savings against these risks. These include maintaining a well-diversified portfolio, utilizing HSAs and Medigap policies, and engaging in tax-efficient withdrawal strategies.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
