Four common retirement risks (and how to plan for them)
How to avoid retirement risks
Transitioning from working to retired life can be both exciting and daunting. As you prepare for this new chapter, it's important to consider the four most common risks that can make you less financially secure in retirement - and our perspective on how best to avoid them.
1. Longevity risk
On average, people are living far longer than they used to. While that's certainly good news, it means that people need an income plan that could last 30 years, or even longer.
2. Market risk
Market downturns can significantly impact your retirement savings, especially if you rely heavily on investments for your income. A sudden drop in the stock market can reduce the value of your investment portfolio, making it challenging to maintain the lifestyle you want.
3. Inflation risk
Inflation erodes the purchasing power of your money over time, meaning that the cost of goods and services will likely increase throughout your retirement. If your savings and income don't keep pace with inflation, you may struggle to afford the lifestyle that you planned.
4. Cognitive impairment risk
As we age, the risk of cognitive and memory decline increases. This can make it harder to manage finances effectively and more vulnerable to scams or poor financial decisions.
Consider addressing these risks with a diversified income strategy
A diversified income strategy is crucial in addressing these four common retirement risks. "Incorporating Fixed Annuities, Variable Annuities, and an Investment Portfolio could help you create a well-rounded approach to retirement planning."
Fixed Annuities
Fixed annuities provide the option to receive a guaranteed income stream for life, helping to mitigate longevity and market risk. They offer stability and predictability, ensuring you have a steady source of income regardless of how long you live. It’s important to remember that any guarantee associated with a fixed annuity is subject to the issuer's claims-paying ability.
Variable Annuities
Variable Annuities offer the potential for higher returns by allowing you to invest in various assets. This can help provide potential growth opportunities to keep pace with inflation. However, they also come with some level of risk, so it's important to balance them with other safer investments.
Investment Portfolios
Investment Portfolios can be tailored to your risk tolerance and financial goals. By diversifying your investments across different asset classes, you can help reduce the impact of market volatility and inflation on your savings. A well-managed portfolio can provide both growth and income. This can help you have the financial resources to enjoy your retirement years and provides liquidity in the event of unforeseen expenses, such as emergencies. It’s important to know that any guarantee associated with a fixed annuity is subject to the issuer's claims-paying ability.
By combining these financial products, you can create a retirement plan that helps to address longevity, market, inflation, and cognitive impairment risks.
Layer your plan to cover your risks
Including a variety of sources as part of your income strategy in retirement helps you diversify and cover all your risk bases so that the likelihood of running out of money is reduced.
Fixed annuities |
Variable annuities |
Investment portfolio |
Diversified income strategy |
|
|---|---|---|---|---|
| Addresses | ||||
| Longevity risk | ||||
| Market risk | ||||
| Inflation risk | ||||
| Cognitive risk | ||||
| Liquidity against unknown risks | ||||
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This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
Investment products may be subject to market and other risk factors. See the applicable product literature or visit TIAA.org for details.
Retirement check refers to the annuity income received in retirement. Guarantees of fixed monthly payments are only associated with TIAA's fixed annuities.
Investment decisions should be made based on the investor's own objectives and circumstances. Advice is obtained using an advice methodology from an independent third-party.
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