The Three Retirement Risks That Should Be Reviewed Together

Retirement planning is often discussed one topic at a time: investments, taxes, Social Security, or long-term care. But retirement decisions rarely stay in one category.

A portfolio decision can affect income taxes. A Roth conversion can affect Medicare premiums. A long-term-care event can change the income available to a surviving spouse. And a market decline early in retirement can have a much larger effect when withdrawals are already underway.

At Triangle Financial Strategies, we believe three risks deserve to be considered together:

• Market risk

• Tax risk

• Long-term-care risk

Market risk is different after retirement

During working years, market volatility may be unpleasant, but time and ongoing contributions can help offset it. Retirement changes the equation. Once income is being withdrawn from savings, a decline in the early years can have an outsized effect on the sustainability of the plan.

This is often called sequence-of-returns risk. Two people can earn the same long-term average return, but the person who experiences poor market returns while taking withdrawals may face a very different result.

The question is not simply, “What return can I earn?” It is also, “How will my income plan function if markets decline while I need to withdraw money?”

Tax risk may become more important over time

Many retirees have saved diligently in tax-deferred accounts such as traditional IRAs and 401(k)s. Those accounts can be valuable, but future withdrawals may be taxable.

Taxes can also affect:

• Required minimum distributions

• Medicare premium brackets

• Social Security taxation

• The tax burden of a surviving spouse

• The amount ultimately passed to children or other beneficiaries
  

A retirement plan should consider not only account balances, but where assets are held and how withdrawals may be coordinated over time.

Long-term-care risk is a household risk

A long-term-care event can affect more than medical expenses. It can change the household’s income needs, spending pattern, investment decisions, and estate plan.

For couples, one important question is: “What would happen to the healthier spouse if the other spouse needed extended care?”

A thoughtful plan evaluates how care might be funded, whether assets are intended to be self-funded, and how the plan protects lifestyle and flexibility for both spouses.

The benefit of coordination

The goal is not to eliminate every risk. No plan can do that. The goal is to understand how the risks interact and create a strategy that can adapt.

A retirement-income plan may include a mix of investment assets, tax diversification, income sources, insurance solutions where appropriate, and periodic review. The right combination depends on each household’s goals, resources, health, family priorities, and tolerance for uncertainty.

If you are approaching retirement or already taking withdrawals, it may be helpful to review whether market risk, tax risk, and long-term-care risk are being considered as part of one coordinated plan.

This material is for educational purposes only and is not tax, legal, or individualized investment advice. Strategies should be evaluated based on your personal circumstances.