Making Your Money Last

5 Hidden Risks to Your Retirement Security

If you're focusing only on your investment portfolio as you prepare for retirement, you may be distracting yourself from what's most important for a good plan. And that mistake can come back to haunt you in unexpected ways.

When most people think about investing for retirement, it’s usually in terms of market returns — because that’s what the media wants us to think about.

Every evening on the news, right before a commercial break, they’ll give you a 20-second market update: The S&P was up 1 percentage point, the Dow was up 2 percentage points and the Nasdaq was up a half-point.

What the heck does that even mean? People are left to wonder: Am I doing well? Am I not doing well? Am I losing ground?

Mark Twain is often quoted as saying something along the lines of, “It's not the return on my money I’m interested in, it’s the return of my money.” We all laugh and nod our agreement. Still, it can be difficult for folks who are close to or in retirement to grasp the concept that big market returns really shouldn’t be their main goal. Focusing on returns actually poses a risk to retirement — and it masks other important issues that can threaten your security, such as:

1. Living longer than you planned.

Most people plan for retirement with the hope that their money will last at least as long as they do. But they may be underestimating how many years that could be. Based on your gender and birthdate, most online tools will put your life expectancy somewhere between 85 or 88 years old. But those are just averages. According to data compiled by the Social Security Administration, about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past 95. So it’s best to have your plan run to life expectancy plus five years at a minimum. If you really want to be conservative, run it to at least age 95. And have your plan updated each year by a professional who is monitoring it on a regular basis.

2. Taxes in retirement.

Don’t confuse tax preparation for tax planning. Tax preparation is limited to the current year; solid tax planning can save you money over decades. That kind of long-range strategizing will be especially crucial if you’re counting on a tax-deferred account (such as a traditional 401(k) or 403(b)) for income in retirement, because those withdrawals will be taxed as ordinary income. Talk to your financial planner about diversifying your income and improving tax efficiency by setting up multiple “buckets” (taxable, tax-deferred, income tax-free/estate tax-free, and income tax-free/estate taxable), which each contain different financial vehicles in the same tax class that you can draw from as you go.

3. Lifestyle expectations.

We see a full spectrum of expectations about lifestyle in retirement. On one end, we have couples come to our office who are so nervous about their future, they’re spending far less per year than what their nest egg is capable of handling, by as much as $30,000 to $50,000 or more. They’re holding back needlessly, instead of living and giving as they could. On the other end, we see people who are completely unrealistic about making their money last. We met with one couple whose plan was to spend $250,000 each year for 15 years until they were 85, then hack their lifestyle in half to $125,000 a year. What they hadn’t considered, though, is what inflation would do to those dollars in the future. In 15 years, they’ll likely still need $250,000 — even if they can manage to cut their spending in half. Guessing is not a plan. A financial adviser can help run the numbers and paint a clearer picture of what you can and can’t do with your retirement money.

4. The not-so-wonderful Eighth Wonder of the World: Compounding.

When you are proactive and intentional in setting up your retirement future, you are taking positive action that benefits you through the power of compounding. However, when you become reactive or indifferent about your retirement options, the power of compounding works against you through compounding mistakes.

The biggest of these mistakes that can compound is procrastination. This is why the biggest villain in estate and financial planning is not taxes, market corrections or health care costs to name a few, but waiting. This mistake most commonly shows up as not getting a second opinion on your retirement plan, not having a fully integrated cash-flow plan, and having investment products without a comprehensive strategic plan to inform the right and best financial and legal solutions specifically for you. In these ways the power of compounding is hurting you, because your mistakes build on each other, compounding the negative impact on your retirement and future. That can lead to less income when you need it most, being forced to sell assets to fund your lifestyle, leaving less to your family and paying too much in taxes in retirement.

5. Knowledge blind spots.

“Begin with the end in mind” is Habit 2 in Stephen Covey’s book The 7 Habits of Highly Effective People, and that’s how you should look at wealth planning. Without that broad view, you create blind spots. In the recently released book Retire Abundantly, by Scott Keffer, to which I was a contributing author, along with Scott Noble, we talk about wealth having three dimensions: financial, personal and social. Most wealth planning targets only the financial: How much money do you have? What are your returns? How much income do you need? But that approach really misses out on the big picture. You can improve that vision by building out a wealth board for your lifetime and legacy. Ask yourself what you hope to create with your money now and later. Often, just thinking about those issues will create opportunities you never even knew were possible.

Don’t let the media or friends who brag about their big returns pull your focus from what is truly important: a retirement plan that accounts for more than just market returns and that is built to last for decades and beyond.

Kim Franke-Folstad contributed to this article.

About the Author

Barry H. Spencer, Registered Investment Adviser

Co-founder, Wealth With No Regrets

Barry H. Spencer is a Registered Investment Adviser and co-creator of Wealth With No Regrets® ( He has appeared on national and regional programs as a financial educator, author, speaker and specialist in estate strategies and charitable giving.

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