Buckle Up: Five Risks to Avoid on the Road to Retirement

An older couple hold on while riding a roller coaster.

(Image credit: Getty Images)

published 31 December 2024

Remember when you were a teenager, first learning how to drive?

Your parents probably talked to you about staying safe, minimizing distractions and watching out for hazards on the road. And you probably listened. Kind of.

But you really just wanted to grab the keys — and your independence.

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Sometimes I think that’s how soon-to-be retirees must feel when they hear and read retirement advice. They’re more than ready (mentally, anyway) to just hit the gas and drive happily into the sunset. But they still need to avoid distractions and to keep an eye out for unexpected obstacles, blind spots and dangerous curves.

If you want to safely navigate your way to and through retirement, it’s imperative to be as prepared as possible for what lies ahead. A good place to start is to be aware of and plan for these common retirement risks.

Many retirees count on Social Security as an important income source in retirement. But many people don’t give much thought to when they’ll apply for their monthly benefits or how their filing decision will impact the amount they’ll receive.

You can file for your benefits any time from the age of 62 to 70. But the longer you wait, the more your monthly benefit will be. And if you file before your full retirement age (which is based on your birth year), your benefit will be permanently reduced.

Unfortunately, there’s no way of knowing what’s right for you without first reviewing your current financial picture and other aspects of your life. Your timing may be based on several factors, including your current health and family health history, whether you plan to keep working at least part time, how much you will need the money early in retirement vs later on and, if you’re married, how much you or your surviving spouse might need to live on after the other passes away.

The Social Security Administration (SSA) website offers planning tools that can help you become more informed. If you haven’t already, you should contact a financial adviser who is a retirement specialist to determine what’s best for your needs.

Risk No 2: Underestimating medical costs

According to Fidelity Investments’ most recent Retiree Health Care Cost Estimate, a 65-year-old retiring in 2024 can expect to spend an average of $165,000 on health care and medical expenses throughout retirement. That’s more than twice what the average American estimates their costs will be.

How can you avoid being blindsided by medical costs? A good first step is to educate yourself about what Medicare will and won’t pay for as you age and how different plan options work. (This is something you can do long before retirement.) Then when you’re eligible for Medicare, you can carefully choose the plan that best suits your needs.

You’ll also want a strategy in place for covering long-term care costs that go beyond what Medicare will pay. Besides long-term care insurance, which can be pricey and hard to find these days, there’s a growing range of options out there, including fixed-indexed annuities and life insurance products that offer long-term care and/or accelerated death benefits.

Because this is a critical and complicated topic, you may want to consult a retirement specialist for help finding a reliable product or strategy that fits your goals.

Risk No. 3: Longevity

If making your money last through a long retirement is one of your top concerns, you aren’t alone. The SSA estimates that a third of 65-year-olds today will live beyond age 90 — and roughly 14% will live past 95.

That’s a lot of years to stretch any savings you’ve managed to accumulate. And we’ve all gotten a good look, in recent years, at the devastating effect inflation can have on our purchasing power.

This is why it’s important to have an investment plan that evolves with your needs as you age. Keeping an appropriate percentage of your portfolio in stocks, exchange-traded funds (ETFs) and mutual funds can help you keep growing your money, for example. You also may want to research how the right kind of annuity could help provide a reliable income source, along with your Social Security benefits and any pension you may have earned.

Risk No. 4: Managing withdrawals

You’ve likely heard of the “4% rule,” which suggests retirees should only withdraw about 4% of their retirement savings annually.

It’s a good guideline to start with, but it’s not a one-size-fits-all solution. Considering longevity, inflation, market volatility and other factors, you may find it makes sense to pare down that number — at least a little. Or you may want to build flexibility into your withdrawal plan so you don’t have to sell at a loss when the market is down because you need the funds.

You may also want to talk to a financial adviser about setting up a plan that addresses when you’ll pull money from various accounts (a 401(k) vs a Roth IRA vs a brokerage account, for example) so you can do it in the most advantageous way.

Risk No. 5: Taxes

Despite what you might have heard, it isn’t safe to assume your taxes will go down in retirement.

The money you diligently stashed into that tax-deferred 401(k) plan all these years? A chunk of it belongs to Uncle Sam. And he’ll get it sooner (when you begin taking retirement withdrawals from that account) or later (when you have to take required minimum distributions (RMDs), starting in your 70s), or much later (if you end up leaving the money to your kids).

Many people aren’t aware that they’ll also likely have to pay taxes on a portion of their Social Security benefits.

Contributing or converting to a Roth IRA, gifting and estate planning strategies, and other options can help you manage your tax bracket — and hold on to more of your money in retirement. But building tax efficiency into your retirement can take time and expertise to implement. It’s not something you should put off until the last minute.

In fact, when it comes to retirement planning in general, there’s really no downside to looking as far down the road as you can.

Kim Franke-Folstad contributed to this report.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Bryan S. Slovon is founder and CEO of Stuart Financial Group, a boutique financial services firm exclusively serving retirees and soon-to-be retirees in the D.C. metro area. He is an Investment Adviser Representative and insurance professional focusing on retirement planning and wealth preservation to a select group of clients. (Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Stuart Financial Group and JWCA are unaffiliated entities.)