Retirement income planning isn’t what it used to be thirty years ago. You can no longer just rely on your pension to have a sustainable retirement income. Instead, you need to plan your financial future meticulously to ensure you don’t encounter severe challenges along the way,
Here are the most common risks to retirement income.

Inflation Risk

Inflation risk is also referred to as purchasing power risk, which means the possibility of an investment income not being worth as much as it was expected to be in the future. Measured using the Consumer Price Index (CPI), inflation risk can severely affect your retirement income and savings. This is because the prices of goods and services tend to increase annually by varying percentages, which means that by the time you hit retirement, they may have gone significantly up.

Diagram representing the increasing inflation rate

Because of increasing inflation, retirees are likely to encounter unforeseen risks to their financial income. As the prices go up, your money is able to buy you considerably less than what you’d thought. Since you’ll no longer be earning, this can create significant challenges during retirement.

Withdrawal Rate Risk

Withdrawal rate refers to how much a retiree withdraws from their savings and/or portfolio each year. A sustainable withdrawal rate is one that has little to no chances of depleting your account. However, the success of a withdrawal rate depends on various factors such as the market conditions, retirement period, asset allocation, and even your age.

Retirees encounter several challenges while and even after transitioning into retirement, which can affect their annual withdrawal rate considerably.Stack of dollar bills scattered around

Investment Behavior Risk

Finally, investments and investor behavior also have a profound impact on your retirement portfolio. We often let our emotions influence our long-term investment strategies. Whether you’re euphoric, excited, or panicky while investing, the emotions you’re experiencing can easily seep into your ability to make a term investment strategy. As a result, you may end up getting in or out of the investment market at the wrong time.

This can make you vulnerable to negative returns once you retire. It may even make you unable to sustain a well-balanced withdrawal rate, causing your wealth to deplete quicker than you’d have thought.

At Federal Benefits Advisors, we offer retirement incoming planning and private wealth management services in Washington, serving the residents of Poulsbo, King County, Bainbridge Island, Pierce County, and Seattle.

Call us for details!