Navigating retirement requires awareness of certain often-overlooked investment risks that can significantly impact financial well-being. Understanding these risks is crucial for maintaining a stable and sufficient income throughout retirement.
1. Longevity Risk
Many retirees underestimate their potential lifespan, leading to the risk of outliving their savings. Statistically, there's a substantial chance of living beyond age 85, with probabilities increasing due to advancements in healthcare. For instance, there's a 50% chance that a 65-year-old male will live to age 85, and a female to age 88.
2. Inflation Risk
Inflation gradually erodes purchasing power, making it a critical concern over a lengthy retirement period. Even modest annual inflation can significantly reduce the value of fixed incomes over time. For example, an annual inflation rate of 2-3% can halve purchasing power over 20 to 30 years. firstlinks.com.au
3. Sequencing Risk
The order and timing of investment returns, known as sequencing risk, can profoundly affect retirement savings. Experiencing significant market downturns early in retirement can deplete assets faster, especially when withdrawals are made during these downturns. This risk is particularly acute during the 'retirement risk zone,' encompassing the years immediately before and after retirement.
How ActOn Wealth Can Assist
At ActOn Wealth, we recognize these challenges and offer tailored strategies to mitigate such risks:
Personalized Longevity Planning: We assess individual health, lifestyle, and family history to create customized plans that address the possibility of extended lifespans.
Inflation-Protected Investment Portfolios: Our advisors design portfolios incorporating assets that historically outpace inflation, helping preserve purchasing power over time.
Sequencing Risk Management: We implement diversified investment strategies and establish cash reserves to provide income during market downturns, reducing the need to sell growth assets at unfavorable times.
By proactively addressing these underrated investment risks, ActOn Wealth aims to provide clients with confidence and financial security throughout their retirement years.
