Retirement Risks that Could Cause You to Run out of Money

Retirement Risks

Watch as Erin Kennedy and Abby Reed from Reed Financial discuss three retirement risks that could lead to running out of money in retirement. The first risk is longevity, as people are living longer, and planning for a longer retirement period can be challenging. The second risk is changes to social security, as there are uncertainties about what changes will be made to the system. The third risk is inflation, which retirees need to account for in their retirement plans. Abby suggests strategies such as having guaranteed lifetime income to cover fixed expenses, diversifying retirement plans, and ensuring a correct allocation to assets that historically keep up with inflation. The conversation highlights the importance of addressing these risks to avoid outliving one’s money in retirement.

Abby Reed and their team at Reed Financial believe in security, value, and peace of mind when it comes to your retirement and financial health. They counsel clients to assess their risk tolerance and adjust their portfolios accordingly. Whether you’re facing retirement—or looking to better understand certain investment ideas Reed Financial can help you address your most pressing financial questions. You can speak to Abby or April to help navigate the emotional aspects of investing and make informed decisions for your financial future here.

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Inflation, Stagflation, and Your Retirement

Transcript:

Erin Kennedy (00:16):

Hello and welcome to Retirement Wealth Academy. I’m your host, Erin Kennedy. Thanks for being with us. This show is dedicated to helping retirees and pre-retirees sort through some of retirement’s most complicated topics and questions. And for that, we turn to local experts. And again, we have Abby Reed. Abby, thank you for being with us.

Abby Reed (00:33):

Absolutely. Great to meet here.

Erin Kennedy (00:34):

Good to see you. Yeah. With Reed Financial of course. So I want to talk through three retirement risks that could cause you to run out of money in retirement. So let’s start with the first one that is longevity risk. Statistically, we are just living longer.

Abby Reed (00:48):

Yes. So we’re living as long as we’ve ever lived, medical advances, we’re taking better care of ourselves, and that’s a great thing. So we’re going to be able to enjoy a lot more time in retirement than maybe our grandparents or our great grandparents. But that brings some more challenges with the retirement planning aspect. We’re planning for a long period of time and we don’t know what that’s going to be. So with longevity, really that’s going to multiply all the other risks. The longer you spend in retirement, really the more chance there is for things to go wrong.

(01:24):

So if we think about what’s happened in the past 30 to 40 years, we can just imagine what’s going to happen in the next 30 to 40 years. So that can be one of the biggest challenges in retirement, especially for a couple. Odds are one of them at least, is going to make it into their nineties, and we want that to be a great retirement. We want them to be able to continue to do all the things that they want to do, and plan for that in case that does happen.

Erin Kennedy (01:53):

You don’t want to compromise your quality of life, but you’re right, you hit the nail on the head. A couple age 65 today has a 50% chance of living beyond 90, which is incredible. So now let’s talk about the second risk, which is changes to social security. I mean, you can’t read a paper or any article these days without people talking about the Social Security Fund.

Abby Reed (02:13):

And it’s scary. And when we get our social security statements, it’s actually on there. So they’re bringing attention to it. Most people are aware of it now, and that’s a huge unknown. Really, the common denominator with these risks is there’re just so many unknowns with them. So with social security, we know that there’s going to have to be some changes. What changes are those going to be? Who knows? There’s constantly talk among politicians of how to correct it, how to shore up the system, whether that’s pushing back when you can claim or potentially making cuts to benefits or maybe raising taxes on social security. We just don’t know [inaudible 00:03:03].

Erin Kennedy (03:03):

But we have to plan for it.

Abby Reed (03:04):

Yes.

Erin Kennedy (03:05):

And our third risk, which holy moly, we’ve talked about this so much, inflation, and I feel like in the past, retirees maybe weren’t taking this into account, but now with numbers like last year’s high as 9%, you can’t just bury your head in the sand with this anymore.

Abby Reed (03:20):

So inflation was low for quite some time before the last couple of years. It was out of sight, out of mind for a lot of people. So in a way, this was a good thing to call attention to it, to let people know that you have to account for that in your retirement plan. You have to make sure that you’re able to give yourself those pay raises that used to come from your employer. Nobody else is going to do it for you, and you need to be able to do that in a safe way. So it doesn’t put your future self in jeopardy. But inflation and protecting that purchasing power is one of the most important things to a long-term successful plan.

Erin Kennedy (04:04):

Of course. So the good news is we know these risks exist so we can start addressing them now. What strategies are you recommending for clients that address those risks?

Abby Reed (04:16):

There are strategies for these risks. So hopefully that gives people a little bit of peace of mind and just knowing about them. So knowing about them, you can take the next step. So for longevity risk, what you’re really going to want to do is make sure that you have guaranteed lifetime income that covers at least your fixed expenses. So those expenses that are going to happen on a month to month basis, you don’t want to have to cut them out if the market goes up and down as it typically does.

(04:47):

And they’re still going to be that income, still going to be there no matter if you’re 85 or if you’re 105. And it increases as well. So those are some of the strategies that we look at. Also, making sure that you have a well diversified retirement plan with a correct allocation to equities, to things that historically keep up with inflation. Like we’ve mentioned before, longevity really multiplies all the other risks and so we have to make sure that we’re accounting for those.

Erin Kennedy (05:22):

You mentioned peace of mind though, and when you talk through those strategies with clients, I’m sure it’s a huge help because as we know, the number one fear for most retirees is outliving their money.

Abby Reed (05:34):

Yes. Especially these days. So we still have social security for hopefully a while longer, but there’s a lot of insecurity about that, and pension plans from your employer really don’t exist anymore. So the responsibility and the risk has been shifted to the individual. So I think that’s why there’s such a big fear of that. Now it’s, “I’ve been responsible, I’ve accumulated, I’m ready to retire. How do I pay myself for the rest of my life?” That’s a difficult question to answer for people that have never done that before.

Erin Kennedy (06:12):

But when you can answer it like you do, what a load off. Well, talking through all these options and these strategies has been very helpful. Abby, thank you very much.

Abby Reed (06:20):

Absolutely. Great to be here, Erin. Thank you.