Finances in Retirement - Investments

Researcher Identifies Five Major Retirement Risks. Which is the Most Serious?

by Alli Thomas

Sep 24, 2021

A research economist from Boston College’s Center for Retirement Research recently identified five major risks to a typical retiree. They are:

  • Market risk: Either from a bear market in U.S. stocks or a decline in home prices
  • Longevity risk: Either outliving your retirement savings or dying before using up your retirement savings
  • Health risk: Unforeseen medical costs and long-term care expenses
  • Policy risk: Unfavorable changes by policymakers (mostly through Social Security cuts)
  • Family risk: Losing your spouse or an unexpected family emergency

Which do you think the research shows as the most serious risk?

Before I tell you what the expert said, I’ll share which risk more than 20,000 Americans over age 50 who have participated in the University of Michigan’s Health and Retirement Study perceived as most dangerous to their retirement security:


Market risk.

Survey respondents perceived longevity risk as the second largest danger to their retirement security, followed by health risk, family risk and policy risk.

However, the economist at Boston College disagreed with this ranking. According to Wenliang Hou, the greatest risk to retirees is longevity risk because it presents an enormous planning challenge.


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Hou pointed to health risk as the second biggest danger as healthcare expenses in later life are often hard to predict.

Despite the perceptions of the age 50+ respondents to the Health and Retirement Study, Hou put market risk third on the list. Why the disparity between the objective and subjective views on this? Hou says that retirees vastly overestimate market volatility and that market risk really isn’t an issue for many retirees because their average investment horizon after retiring is 20 years.

Closing out Hou’s list are family and policy risks.

What does this mean for pre-retirees and retirees?

There are three big takeaways from this research.

First, older Americans are clearly a bit off in their assessment of true risks to their retirement security. This points to a need for better retirement education.

Second, longevity risk also needs to be addressed in retirement planning. Retirees should consider products that provide lifetime income to mitigate the possibility of outliving their savings.

Finally, the Health and Retirement Study shows that many older Americans underestimate their need for and costs of long-term care. Hou’s research shows health risk to be second only to longevity risk. Someone turning 65 today has close to a 70% chance of requiring long-term care at some future point. 

An experienced financial planner can provide lots of suggestions for dealing with these risks. If you’d like to start a conversation about your financial plan, click here to schedule a free, no-obligation appointment with one of our advisors

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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