ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Retirement risks: A comprehensive overview

Updated on July 7, 2011
Retirement risks can leave you perpetually concerned.
Retirement risks can leave you perpetually concerned.

For some retirees, retirement is an era of hope and fulfilment. For others, it is a minefield, littered with risks and pitfalls. The difference between the two groups is that one manages the risks of retirement far better than the other does.

After all, risks are an inherent aspect of life; how we choose to manage it matters. Indeed, none of the retirement pitfalls is insurmountable. When doing retirement planning, you should consider the potential or inherent risks associated with it.

How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor
How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor

How to Retire Happy, Wild, and Free offers inspirational advice on how to enjoy life to its fullest. The key to achieving an active and satisfying retirement involves a great deal more than having adequate financial resources; it also encompasses all other aspects of life -- interesting leisure activities, creative pursuits, physical well-being, mental well-being, and solid social support.


Purchasing power risk

With inflation being the norm and taxation being a financial reality, retirement income—particularly fixed retirement income—loses value precipitously over time. The concern to retirees is the loss of real value of savings and income in retirement.

Apart from being an inherent burden, this poses a dilemma to retirees in terms of how much risk to take when investing. Having an ultra-conservative portfolio exposed the retiree to purchasing power risk more while investing more aggressively increases the market risk.

Longevity risk

Longevity risk is a fancy way to definethe risk of outliving your savings. Particularly when retirees fail to plan properly, they find themselves scraping the bottom of the proverbial barrel before their 10th year of retirement. Increased life expectancies are also placing an additional burden on retirees' nest egg. With inadequate nest eggs, other risks of retirement and longer retirement periods, longevity risk will be the most significant retirement challenge we face.

Market risk

Trying to save or invest in the financial market has attendant risks, particularly retirees—who face shorter investment horizons. As we saw with purchasing power/inflation risk and longevity risk, retirees need to have some capital growth to sustain their standard of living throughout potentially longer retirement periods.

Even retirees who are annuity investors are exposed to market risk to an extent, especially where variable annuities are concerned. In difficult or uncertain economic circumstances, retirees may not be certain about retirement fund allocations. Managing market risk is about balance and comfort—portfolio diversification and risk tolerance.

Spending risk

The golden rule of financial planning is that you spend less than you earn. In retirement it is easy to fall in the trap of spending too much too quickly, particularly in the first few years of retirement. Failing to cut off spending leaks in retirement does not merely your retirement income; it threatens your retirement savings. This increases longevity risk and may force the retiree to take more risks in the hope of recouping lost savings and saving less in order to keep pace. Given that fixed retirement incomes decline significantly over time, it is wiser to be frugal initially and have more to spend later. The attitude that you could die tomorrow, so it does not matter does is irresponsible at best.

Household shock risk

"Retirement engineers" use the term "Household Shock risk" to denote uncertainties that create risks in domestic life. Household Shock risk captures the uncertainty provided by unforeseen expenses or circumstances within your household. Death of a spouse, illness, divorce and unemployment are some of the risk that can appear to thwart retirement plans and ambitions.

Socio-psychological risks

While retirement planners tend to focus on financial aspects of retirement, for mental health and well-being, retirees should also focus on the socio-psychological dimension of it. Some might face isolation as they get older or find themselves feeling inadequate or without purpose. Since most persons have spent the majority of their adult life in employment, this is quite understandable. Having a job provides an in-built social life. Those on the cusp of retirement and those who have already retired should become socially active after retirement, and find ways to keep themselves mentally active and alert during retirement.

Tax/ legislation risk

When things go wrong sometimes, it is easy to blame the government for what they did and did not do. Sometimes, governments introduce unfavourable legislation or changes in the tax structure that negatively affect retirees, like a reduction in the personal allowance or increase in property taxes. Tax or legislation risk is one retirement risk that is not under your control. This merely underscores the importance of properly managing the risks over which you have control.

Health risks

As we become older, we become increasingly prone to illness, especially critical illness. You should note how many health insurers stop medical coverage for seniors once they cross a certain age—usually around 70. Huge medical bills and poor health combine to wipe the sheen off your golden years and make a dent in your standard of living. WIth health, prevention is far better than cure. Thanks to the availability of books on healthy living, you can get a headstart in living a healthy and productive retirement. It is in your hands.


The good news is that no retirement risk is insurmountable. Prudence, proper planning and living within your means are ways to ensure that you do not descend into poverty during your golden years. We are designed to overcome obstacles, or at least withstand many. Retirement risks are like potholes on the road—you can skilfully avoid them, allow them to give you a rough ride or have them derail you. Ultimately, it is your choice.


Submit a Comment

  • dai losinski profile image

    dai losinski 

    6 years ago from Surrey, UK

    Hi, I've already taken early retirement and having prepared reasonably well, I'm comfortable at the moment. But as you said in the 'Household Shock Risk' section, you can never tell what might happen. With that in mind I'm trying something which costs absolutely nothing and I wrote a hub about it. Look for single parent!

  • wilderness profile image

    Dan Harmon 

    7 years ago from Boise, Idaho

    Some good thoughts here - I am considering early retirement next year and risk management is of course of great concern.

    Your breakdown into different types of risk is a help - I had not considered all of them. Thanks.


This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)