Entering retirement is a major milestone. After years of saving and investing, your focus shifts from building wealth to protecting retirement savings and creating a reliable income. For many retirees, however, the early years of retirement introduce risks that are often underestimated—and can have lasting financial consequences.
1. Longevity Risk: Outliving Your Retirement Income
One of the most significant retirement risks is longevity risk, or the possibility of living longer than your retirement savings were designed to last.
According to the Social Security Administration, a 65-year-old today can expect to live, on average, to about age 84 or 85. Importantly, many retirees—especially couples and healthy individuals—will live well beyond that average, potentially into their 90s (SSA Actuarial Life Table, 2024).
Research from the TIAA Institute shows that retirees often underestimate how long retirement may last, which can result in income strategies that fall short later in life.
How to manage longevity risk
- Plan for a retirement that may last 25 to 30 years or longer, not just the average life expectancy.
- Prioritize guaranteed lifetime income to help ensure essential expenses remain covered regardless of how long you live.
- Reduce dependence on market-driven withdrawals by including income sources designed to provide a predictable cash flow for life.
Longevity planning shifts the focus from “How long will my money last?” to “How can my income last as long as I do?”
2. Health Care and Long-Term Care Costs in Retirement
Health care is one of the largest and most underestimated retirement expenses. While Medicare plays an important role, it does not cover many out-of-pocket costs or most long-term care services.
The Center for Retirement Research at Boston College estimates that about 70% of individuals turning age 65 will require some form of long-term care during their lifetime.
Despite this, many retirees do not have a clear strategy for funding these potential expenses.
Additionally, Fidelity Investments’ 2025 Retiree Health Care Cost Estimate projects that a 65-year-old retiree may need approximately $172,500 in after-tax savings to cover health care costs in retirement—excluding long-term care.
How to manage health care risk
- Include realistic health care and long-term care cost assumptions in your retirement income plan.
- Structure income so essential expenses are protected, even if medical costs increase unexpectedly.
- Consider strategies that provide stable, guaranteed income, helping preserve retirement savings during periods of higher health-related spending.
Planning for health care costs helps protect both financial independence and peace of mind.
3. Inflation and Market Risk: Protecting Purchasing Power in Retirement
Inflation and market volatility can quietly erode retirement income over time. According to the U.S. Bureau of Labor Statistics, prices for essential goods and services—including food, housing, and medical care—have risen steadily over long periods.
Even modest inflation can significantly reduce purchasing power. For example, a sustained 3% annual inflation rate can cut purchasing power by roughly 50% over 25 years.
At the same time, market downturns early in retirement can have an outsized impact. Research from the Center for Retirement Research at Boston College highlights sequence of returns risk—the danger that withdrawing income during market declines can permanently reduce the sustainability of a retirement portfolio.
How to manage inflation and market risk
- Balance growth potential with principal protection to reduce exposure to market downturns.
- Limit reliance on market performance for essential income needs.
- Incorporate income solutions designed to provide consistent cash flow regardless of market conditions.
Managing retirement risk is less about maximizing returns and more about maintaining stability, predictability, and purchasing power.
Building a More Secure Retirement Income Strategy
Retirement planning doesn’t stop when work ends—it evolves. Longevity risk, rising health care costs, inflation, and market volatility are ongoing realities that can shape financial outcomes for decades.
At Jacobs Financial, we help clients build retirement income strategies focused on safety, sustainability, and guaranteed income. By addressing these risks early, retirees can move forward with greater confidence and clarity.
Sources
- Social Security Administration. Actuarial Life Table (2024). www.ssa.gov
- TIAA Institute.Longevity and Retirement Income Research. www.tiaa.org
- Fidelity Investments. 2025 Retiree Health Care Cost Estimate. www.fidelity.com
- Center for Retirement Research at Boston College. Long-Term Care and Retirement Security. crr.bc.edu
- U.S. Bureau of Labor Statistics. Consumer Price Index. www.bls.gov
