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The Biggest Risks to a Successful Retirement

Updated: 5 days ago

Retirement is a milestone we all look forward to, but it brings its own set of financial challenges. One of the biggest fears for retirees is outliving their savings. To ensure your nest egg lasts through your golden years, it's essential to understand and manage the biggest risks that can impact your retirement funds.

Longevity Risk

First, there's longevity risk. As life expectancy increases, many retirees find themselves living longer than anticipated, which means their savings need to stretch further. Planning for a longer retirement period is crucial to ensure financial stability throughout your lifetime.

Inflation Risk

Inflation is another key consideration. Over time, the cost of living rises, and what seemed like a substantial amount of savings can lose its purchasing power. Ensuring your investments can keep pace with inflation is vital to maintaining your standard of living.

Tax Risk

Taxes also play a significant role in retirement planning. The tax landscape can change, and unexpected tax liabilities can erode your savings. It's important to plan for taxes in your withdrawal strategy to minimize their impact on your retirement income.

Sequence of Returns Risk

However, the hardest risk to solve for is sequence of returns risk. This risk arises from the order in which you experience investment returns, especially during the critical years of retirement when you're making withdrawals from your portfolio. If you face significant losses early in retirement, it can severely impair your ability to recover, particularly when you're simultaneously drawing down your funds.

bar chart with returns
The bigger the loss, the bigger the gain you need to break even.

When you withdraw money from a portfolio that's experiencing a downturn, you might be forced to sell investments at a loss, which can lead to a systematic liquidation of your principal. This is why managing maximum drawdown and sequence of returns risk on the downside is crucial.

Upside Sequence of Returns

It's not just the downside you need to worry about. The sequence of returns on the upside is also important. Achieving higher returns earlier in retirement can significantly improve your financial outlook, as those gains can compound over time. However, the upside sequence of returns needs to account for taxes, inflation, and fees. You want to ensure the annualized returns are historically smooth, allowing your portfolio to grow steadily without being eroded by withdrawals and the other risks outlined above.

A "Well-Balanced" Portfolio Strategy

To mitigate these risks, you need a well-balanced portfolio that considers drawdown, negative sequence of returns, and future market conditions. A robust retirement portfolio should be diversified to withstand market volatility and structured to perform well regardless of market conditions. This means combining different asset classes, maintaining a mix of equities, bonds, and other investments, and regularly rebalancing to stay aligned with your risk tolerance and financial goals.

Additionally, working with a financial advisor can help tailor a strategy that addresses your specific needs and adjusts as circumstances change. They can provide guidance on the best approaches to manage these risks and help ensure your retirement savings last as long as you need them to.


In conclusion, while longevity, inflation, and taxes are all significant risks to consider, sequence of returns risk is the most challenging to manage. It requires careful planning and a strategic approach to ensure your retirement savings can withstand the market's ups and downs. By understanding and mitigating this risk, and by maintaining a balanced portfolio that takes into account both the downside and upside sequence of returns, you can help secure your financial future and enjoy a more stable and fulfilling retirement.

Our award-winning machine learning-based portfolio optimization engine was built to help solve the most complex financial planning and investment needs. To learn more, check out our website or book a meeting with our team today.



Unless otherwise indicated all performance is sourced from Bloomberg.


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