Retirement Risk Assessment
This worksheet is designed to address some of the most concerning risks that individuals could face during retirement. This tool is used to identify the concerns and to discern whether proper planning solutions are in place to decrease or eliminate the risk.
- Longevity Risk- The risk that someone will outlive their wealth and available income.
- Entitlement Risk- The risk that government programs such as Social Security or Medicare will not offer sufficient protection for retirement.
- Withdrawal Risk- The risk that an individual will draw down assets too quickly and undermine their retirement plan. Excess withdrawal risk can be managed by preparing a well-developed plan that includes a clear understanding of retirement expenses and available sources of income.
- Market Risk- The risk of losing invested wealth, either temporarily or permanently, because of a market turndown or poor investment performance. Market risk can be managed through diversification of savings and investments.
- Lifestyle Risk- The risk that there is not sufficient income to maintain the current or expected standard of living during retirement. Lifestyle risk can be managed through disciplined savings, sound budgeting and planning.
- Asset Allocation Risk- The risk of investing either too conservatively or too aggressively and not adequately diversifying assets to sustain a portfolio across market cycles.
- Sequence of Returns Risk- The risk of receiving low or negative returns in early years of drawing down a retirement portfolio and increasing the potential of running out of money prematurely.
- III Inflation Risk –The risk that rising costs will undermine purchasing power over time.
- Medical Expense Risk- The risk of paying for the growing coast of health care related services in retirement.
- Tax Risk- The risk that rising taxes or unforeseen tax consequences can have on a portfolio
- Personal Event Risk- The risk that an unexpected change in family circumstances (divorce, death, adult children returning home) may undermine anticipated retirement plans. Personal or event risk can be managed through preparation of a financial plan and by establishing reserve or rainy day funds that can be used for emergencies.
- Incapacity Risk- The risk that because of deteriorating health, a retiree may not be able to execute sound judgment in managing their financial affairs. Incapacity risk can be managed through having tools such as wills, trusts, and power of attorney provisions in place at the time of retirement, if not before.