The RICP® designation is the fastest growing designation in the 88 year history of The American College, and for good reason.

Click below to view the risks associated with retirement income planning organized into six different categories. Be sure to check back next week as each week we will add a new risk associated with retirement income planning.


Risk No. 1: Longevity

Retirement Risk #1 Inforgraphic

The average life expectancy for males is 84, and 86 for females. 1 in 4 will live past the age of 90. 1 in 10 will live past 95.

No one can predict how long he will live. This complicates planning since a retiree has to secure an adequate stream of income for an unpredictable length of time.

Your client plans to live to age 82. It turns out that he lives to 92. How are you going to help him make his money last an additional 10 years?


  • Uncertainty cannot be eliminated but good planning starts with a realistic expectation of life expectancy using life expectancy tables as well as considering personal and family health history. One online calculator that takes these factors into consideration in providing an individual estimate is called the living to 100 calculator.
  • Many will want to plan to age 90 since 1 in 4 are expected to live that long--but fewer may want to plan for living past age 95 as only one in 10 lives that long. Those with a greater concern about outliving their assets will choose a longer planning horizon. It is important to note that unless the risk is transferred, the longer the planning horizon, the more resources will be required to be saved.
  • Transferring the risk of living too long can be accomplished by increasing sources of income that provide income for life.
  • Other sources of income payable for an indefinite period will provide some protection from longevity risk.
  • With a strategy of taking periodic withdrawals from a portfolio, it is important to carefully consider how much can be withdrawn and still ensure that the portfolio lasts a lifetime.
  • A contingency fund can be built that can be used for longevity as well as other risks.
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Risk No. 2: Inflation

Retirement Risk #2 Inforgraphic

In retirement, salary adjustments don't account for inflation and purchasing power is reduced making it difficult to maintain a standard of living.

When working, inflation is often offset by an increased salary. In retirement, inflation reduces the purchasing power of income as goods and services increase in price, impeding the client’s ability to maintain the desired standard of living.

If a client needed $5,000 a month to live when they retired at age 62 in 1981. They will need $12,373 per month in 2011 to maintain the same purchasing power.


  • The first part of the plan to address inflation is building in realistic estimates of long-term inflation when calculating how much to be saved for retirement. In this modeling sophisticated retirement software can apply different inflation rates to different expense categories.
  • An excellent strategy is to build in streams of income that have built in inflation protection.
  • Besides income streams that have direct inflation protection, you can also simply build income streams that increase over time.
  • Purchase Inflation adjusted investments such as US government TIPs and Series I Treasuries. TIPs can be used to build an inflation-adjusted stream of income, and TIPs and Series I Treasuries can also simply be part of a portfolio that keeps up with inflation.
  • Invest in asset classes that are likely to do well in inflationary times.
  • Under the safe withdrawal rate research, a 4 or 4.5 percent withdrawal based on the initial portfolio value can have cost of living increases and still be safe for a 30-year retirement period.
  • Have a contingency fund that addresses a number of risks in retirement. Note that longevity risk and inflation risk are related, and if a client lives a long time, he or she will have more exposure to inflation risk as well—meaning that having a single fund to address both risks may be problematic.
  • Another way to manage inflation risk is to shorten the retirement period—reducing the number of years that the retiree is subject to inflation. This can be done simply by deferring retirement. This is another value to working longer that is not always considered.
  • Working part-time in retirement may be another way to offset inflation risk as wage income is likely to reflect the inflationary pressures.
  • Lower or eliminate expenses in retirement.
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Risk No. 3: Excess Withdrawal

Retirement Risk #3 Inforgraphic

Even though a client may have historically earned an 8% return on her investments, there is a risk if she withdraws at a similar rate.

When taking withdrawals from a portfolio during retirement to fund income needs, there is a risk that the rate of withdrawals will deplete the portfolio before the end of retirement.

Since you know that stocks have historically earned an average of 8% a year, you assume that you can recommend your client can afford to withdraw 8% of the initial portfolio value (plus a little more for inflation each year)—while in reality to protect against the uncertainty of the market you may have to limit her withdrawals to 4% or less.


  • Building a plan to address excess withdrawal rate risk requires an understanding of the research about rates of withdrawals that can be sustained over a retirement period.
  • Technically, the safe withdrawal rate means the rate that using historical analysis would be sustainable in the worst case scenario. In many years, a higher rate would work - meaning it's not that easy to pick an appropriate withdrawal rate.
  • Choosing a withdrawal rate also means weighing a client's desire for increased spending in relation to willingness to reduce spending. That is in part the client's attitude, but it's also a function of his risk capacity as well. If a retiree has Social Security and a substantial pension that is payable for life, then the client has more capacity for risk in taking withdrawals from the portfolio.
  • A real and serious consideration is sticking with the withdrawal plan. It should be helpful to have regular client meetings reviewing the plan and making sure that the client has a clear understanding of the consequences of failing to follow the plan.
  • Whether the plan is realistic is also a function of whether other contingencies have been planned for, or whether the portfolio is being relied upon to meet long-term care needs, unexpected health care expenses and other risks faced in retirement. Sometimes clients simply determine their income needs without considering those big periodic expenditures like replacing a roof or buying a new car.
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Risk No. 4: Health Expense

Retirement Risk #4 Inforgraphic

According to an EBRI study, the dollars needed at 65 to cover health care costs for couples varies from $151,000 to $360,000.

For those that had employer health care coverage, retirement may mean paying more for medical insurance (Medicare Parts B and D and Medicare Supplement policies). Even with insurance, some expenses will be paid out of pocket. Also, chronic or acute illnesses may mean more significant and unexpected out-of-pocket expenses.

At age 70, a client has some serious problems with her feet and she discovers that Medicare does not cover routine podiatrist visits. Or an even bigger surprise, she has a major surgery and discovers she faces a deductible and a 20 percent copay on many expenses.


  • Planning for unexpected health care costs begins by choosing appropriate insurance. For those aged 65 and above who are eligible for Medicare, it means understanding options under Medicare and choosing insurance to supplement Medicare.
  • Having comprehensive insurance helps to make costs more predictable and avoid any extraordinary expenses. Medicare has no cap on out-of-pocket expenses; to limit costs requires purchasing a Medicare supplement.
  • A critical part of planning is making sure that sufficient funds are available at retirement to meet expenses. Determining costs is not easy as they vary a lot from individual to individual. When modeling health care expenses, you can build in a lump sum amount to the amount needed at retirement or estimate annual expenses each year. Also, it’s important to consider the inflation factor appropriate for medical expenses.
  • Insurance for those eligible for Medicare.
  • Pre-Medicare coverage is required for those that retire prior to 65.
  • Controlling health care costs can also be part of the solution.
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Risk No. 5: Long Term Care

Retirement Risk #5 Inforgraphic

70% of all people aged 65 and older will need long term care at some point.

Chronic diseases, orthopedic problems, and Alzheimer’s can restrict a person from performing the activities of daily living, which will require financial resources for custodial and medical care.

Because of physical or mental infirmities, a client needs help with basic activities such as dressing, taking a shower, or even eating. To get help, he may need to move to assisted living, a nursing home, or go to adult day care. Even if a family member can provide care, it might be a real financial burden for him, especially if he has to cut back on work.


  • Planning for long-term care.
  • Buying insurance as a solution. When looking to purchase long-term care insurance, there are a variety of decisions that need to be made.
  • Government solutions as an option.
  • Managing costs as a solution.
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Risk No. 6: Frailty

Retirement Risk #6 Inforgraphic

Deteriorating mental or physical health can pose financial risk. A University of Michigan study shows 1/3 aged 65+ suffer from frailty.

Frailty risk is the risk that as a result of deteriorating mental or physical health, a retiree may not be able to execute sound judgment in managing her financial affairs and/or may become unable to care for her home.

Your client owns a big home and begins to find cutting the grass or shoveling the snow more difficult and can't find someone to do these chores without paying an exorbitant amount. He loses the ability to drive, and since he lives in the country it becomes difficult (and expensive) to get around.


  • Having others step in to make decisions may mean involving a family member, hiring a daily money manager, or even selecting a corporate trustee to make investment decisions.
  • Giving someone control is generally done with a power of attorney, which is either currently in force (durable power) or becomes effective only when the individual is no longer able to make decisions (springing power).
  • Having assets in a living trust is another option, and the retiree can remain the trustee until he or she decides to step down in favor of a prechosen successor trustee.
  • Preplanning with the documents described here is critical to avoid having to go through a court incompetency hearing in which a court-appointed guardian is chosen
  • Simplifying finances can also be helpful by using direct deposit for income payments and automatic withdrawals for regular bills. Some retirement products are simpler to manage as well, such as an immediate life annuity.
  • Household management solutions for addressing frailty
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Risk 7: Financial Elder Abuse Risk

Retirement Risk #7 Inforgraphic

The possibility that an advisor, family member, or stranger might prey on the frailty of the client, might recommend unwise strategies or investments, or might embezzle assets.

James, under the guise of taking care of his elderly father, abuses his power of attorney to acquire assets for his drinking and gambling problem.


  • Retirees can protect themselves from financial elder abuse by: opening and sending their own mail, complete and sign own checks, setup direct deposit, use voicemail to screen calls, make sure wills, advanced directives, and powers of attorney are executed to ensure that trusted individuals will step in to make decisions when needed and learn about where to go if abuse is expected and be willing to ask for help from the police and adult protective services.
  • Steps that Financial Advisors can take to help protect their clients against financial elder abuse include: educating clients about their risks and the risks of financial elder abuse. The client can be better prepared to identify and avoid fraud, abuse, and scams, helping the client set up a plan for when he cannot continue to manage his financial and other affairs, pay attentions to changes that might indicate signs of elder abuse, staying appraised of current trends in abuse and how to prevent them, seeking assistance from social workers, government agencies, others when appropriate, and reporting cases of abuse.
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Risk No. 8: Market Risk

Retirement Risk #8 Inforgraphic

The risk of financial loss resulting from movements in market prices.

In a research study, Wade Pfau showed the impact of market risk on retirement income planning. Looking at 151 hypothetical portfolios, each earning market returns, with the only difference being the 30 years measured, the amount accumulated at retirement varied a lot-- the average accumulation was 10 times salary, but outcomes ranged from 3 to 27 times salary depending upon the 30-year period tested.

The impact of the specific rates of return in the final years of accumulation when the value was the highest had the most impact on the ending value at retirement.


  • One approach to address this challenge in retirement income planning is to choose a bifurcated investment strategy, with investments and products with little or no market risk chosen to meet basic needs and more market risk taken to address discretionary and unexpected expenses and legacy goals. With this approach, basic expenses can be met with Treasury or other low risk government bonds, buying annuity income, or even deferring Social Security benefits.
  • Other ways to reduce market risk include: having the lowest exposure to equities in the years nearest retirement age—where a bad order of negative returns can have the most negative impact, consider market conditions when choosing how much to withdraw, lowering withdrawals in bad years reduces the risk of failure, and purchase downside protection for the portfolio with derivatives and income riders in deferred annuities.
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Risk No. 9: Interest Rate Risk

Retirement Risk #9 Inforgraphic

Technically, this is the risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market.

When interest rates are low (as they are today), if interest rates rise, values of individual bonds and bond mutual funds will decrease.

If fixed income investments are reinvested, a related risk— referred to as reinvestment risk—arises. This is the risk that when it comes time to reinvest fixed income investments, interest rates may be lower.

In retirement income planning, interest rate risk is also considered the risk that the returns on fixed income investments vary and at times can be quite low.


  • Interest rate risk in the technical sense can be eliminated by holding bonds to maturity and liquidating the bonds to meet income needs. Bonds are used this way in a strategy referred to as asset dedication.
  • When bond investments are going to be reinvested, there is some ability to offset interest rate and reinvestment risks—using a strategy called immunization.
  • In the long-term low interest rate environment of today, current retirees probably think of interest rate risk as the risk that they can’t earn enough to meet their needs with fixed income investments. Today’s retirement income strategies that focus on a total returns approach are in some ways a reaction to today’s low interest environment.
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Risk No. 10: Liquidity

Retirement Risk #10 Inforgraphic

Liquidity risk is the inability to have assets available to financially support unanticipated cash flow needs.

Liquidity may be considered a risk or just a characteristic of an investment—the ability to sell the investment at a reasonable value quickly.

With regard to specific investments, the issue of liquidity comes up in several contexts. First there are definitely assets that may not be able to be sold quickly at a fair market value. Real estate and business interests come to mind. The other context is with annuities. Life annuities have traditionally offered no liquidity, although that is now changing with some products offering a limited ability to liquidate. Deferred annuities offer liquidity, but surrender charges can reduce the value.


  • Planning for having sufficient liquidity is an important part of a retirement income plan, as we know that retirement comes with unexpected expenses and the need to be able to sell investments.
  • Planning should definitely consider what assets are available if liquidity is needed. Besides having a cash reserve or liquidating investments, other alternatives for a short-term need can be borrowing from a life insurance contract, a home equity line of credit or reverse mortgage line of credit or borrowing from a margin account.
  • One of the often touted advantages to taking systematic withdrawals from a diversified portfolio is that the strategy offers liquidity. Some would argue that if you are taking withdrawals from a portfolio that you don’t really have liquidity as you need the assets to meet the withdrawal requirements.
  • When talking about liquidity, most are also thinking about flexibility as well—that is, in the ability to change strategies in the face of new law changes, investment conditions or other reasons. Clearly a systematic withdrawal strategy offers flexibility.
  • There are some planners that would say that having too much liquidity is a liability. It gives the retiree the opportunity to spend too much on themselves and their families, and gives those that would harm seniors the opportunity to take their money.
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Risk No. 11: Sequence of Returns

Retirement Risk #1 Inforgraphic

Investment returns are variable and unpredictable. The order of returns has an impact on the how long a portfolio will last if the portfolio is in the distribution stage and if a fixed amount is being withdrawn from the portfolio. Negative returns in the first few years of retirement can significantly add to the possibility of portfolio ruin.

Peggy’s portfolio is worth $10,000. She draws $1,100 at the end of each period. Peggy earns returns in years 1 through 5: 40%, 20%, 0%, –20%, –40%. Peggy has a 0% average rate of return.

Gregg starts with the same amount, makes the same withdrawals, and earns the same returns, except in reverse order.


  • Sequence of returns risk is tied in part to portfolio volatility. Reducing volatility in the retirement portfolio reduces sequence of return risk. This can be done by purchasing life annuities or buying bonds to build a specified income stream over a specified number of years in retirement.
  • Choose a withdrawal strategy from the portfolio that allows for adjustments for market volatility.
  • Provide for downside protection in a portfolio. This can include using derivatives and purchasing deferred variable annuities with living benefit riders that provide minimum income benefits on deferred variable annuities or indexed annuities.
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Risk No. 12: Forced Retirement

Retirement Risk #1 Inforgraphic

There is always the possibility that work will end prematurely because of poor health, disability, job loss, or to care for a spouse or family member. This event can quickly derail a retirement plan.

Peggy plans to work until age 65, but her long time employer suddenly closes her office when she is 61. There are very few employers needing her skills in the area, and she is unable to find suitable employment. Not only are her plans to accumulate more funds for retirement ambushed, but she may not be able to receive or afford health care coverage until she is eligible for Medicare.

MMI study—54% of oldest boomers retired earlier than planned

EBRI—47% retire earlier than planned


  • Given the statistics of how many retire earlier than planned—it is prudent to and come up with a plan for the unexpected.
  • One way to do this is to show retirement readiness at different stages—with the goal of building resources to provide a reduced but adequate standard of living—let’s say 10 years from retirement, a more comfortable standard of living 5 years prior to retirement and the desired standard of living at the planned retirement age. By setting the savings program up to meet graded goals, you may encourage the client to save earlier and to assess what the final years of work will mean to his/her retirement.
  • Some job losses are inevitable, and for that contingency employees should pay attention to severance programs—and the possibility of negotiating for a better deal if there is a layoff.
  • As workers age, it remains critical to stay current with skills and to learn new ones to make sure that they remain a valuable part of their organization.
  • In case looking for new work becomes necessary, it’s also important for older workers to stay ready for this contingency by taking steps to maintain professional networks and keep a resume polished.
  • Many health concerns that shorten a career are unavoidable—but not in all cases. If work is so critical to retirement security, maintaining healthy eating, weight management, getting enough sleep and exercising regularly becomes an important part of retirement security.
  • To maintain health, older workers may want to consider making changes that allow them to work longer. This can mean taking more time off, reducing responsibilities, or cutting back on clients.
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Risk No. 13: Reemployment Risk

Retirement Risk #13 Inforgraphic

Many retirees plan on working in retirement. Reemployment risk is the inability to supplement retirement income with employment due to tight job markets, poor health, and/or caregiving responsibilities.

Robert is an avid wood worker who had intended to make furniture and sell it on eBay throughout his retirement. However, poor physical health impeded his ability to practice his craft.

Working part-time may result in a reduction in pay but with increased job satisfaction.


  • Based on the statistics, planning on significant employment income in retirement may be unrealistic for some. Jobs may be unavailable or the client maybe unable to work.
  • If the client really needs income to meet retirement objectives, it may be best to postpone retirement from a career job that pays better and offers health insurance and other benefits.
  • For those looking to work in retirement, be sure to use available resources to find employment opportunities that are meaningful and meet income requirements. Books like "What Color Is my Parachute in Retirement," and websites like AARP can be quite helpful.
  • It’s also important to be open to learning new skills to be successful in the job market.
  • It’s important to recognize that work in retirement can have important rewards other than money. The retiree may use a job to add some purpose, fill time, or build a social network.
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Risk No. 14: Employer Insolvency Risk

Retirement Risk #14 Inforgraphic

Employer-provided retirement benefits are an important part of retirement security for many. If the employer has financial problems, employees may lose their jobs and in some cases their benefits.

Larry is a retired schoolteacher in Illinois. The teacher’s plan has serious funding problems. Larry wakes up every morning and looks for news about what is going to happen with his pension.


  • There are limited steps to take to protect pension benefits—but in many cases pensions are quite safe.
  • For those who work for a private employer and are covered by a defined-contribution plan, maybe the best advice is avoid or at least minimize exposure to company stock. As economists will point out, having your human capital (earnings from employment) and your financial capital tied up with the employer is taking on too much risk.
  • When an employee retirees, she may feel like she wants to elect a lump sum benefit because she doesn’t trust that the plan and employer will pay her pension. But with privately sponsored plans covered by the PBGC, the employee is better served to choose the distribution option that best fits her needs.
  • Executives that participate in nonqualified plans do have to pay attention to company finances. If the plan calls for employee salary deferral contributions—the executive needs to think carefully before participating. If the benefit is a supplemental benefit provided by the employer, the executive does not have much control—but will want to pay attention to options regarding the timing of payout.
  • Government entities can sponsor 457 plans. Government sponsored 457 plans have to hold assets in an irrevocable trust, and benefits can be rolled into an IRA in retirement. Note that this is not true for a 457 plan sponsored by a nonprofit entity. With nonprofits, these plans operate more like nonqualified deferred-compensation plans.
  • With publicly-sponsored plans, there is somewhat less security than with defined-benefit plans. Here, especially with municipality plans, if the entity is in financial distress now a lump sum option versus taking an annuity may be an appropriate consideration.
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Risk No. 15: Loss of Spouse Risk

Retirement Risk #1 Inforgraphic

The loss of a spouse is a major personal loss, but without planning can also result in a decline in economic security.

Eric retired at age 65 and began to receive a company pension. To increase monthly benefits, he chose the single life annuity, which ceased upon his death, cutting his spouse’s income drastically as she no longer had any pension income and Social Security benefits were reduced as well.


  • Clearly planning for a solution involves ensuring that income needs are satisfied for the surviving spouse. There are a number of ways to accomplish this, but one fact is sure: both spouses need to be involved in the process of building the retirement income plan. If one of the spouses is not comfortable with making financial decisions, the plan needs to address this issue as well.
  • Another part of the plan involves proper estate planning to make sure that wills, trusts and beneficiary designations have been properly completed to protect the spouse.
  • In terms of the financial plan, there are number of ways to protect the spouse. One is to make sure that Social Security decisions maximize the survivor benefit. As Social Security continues to pay the larger of the two benefits, a key planning strategy is to defer the larger benefit to maximize the survivor benefit.
  • Another way to increase income to the survivor is to choose joint-and-survivor options when electing pension benefits. Unfortunately many elect single life to increase the benefit. Also income annuities can be purchased with a joint lifetime payout.
  • Life insurance can provide benefits for a survivor. If permanent life insurance is purchased on both lives, the death benefit at the first death can provide income to the survivor, and if more income is needed the cash value on the other policy can be used to meet income needs. There are also some companies selling first-to-die policies to meet this type of survivor income need.
  • Continuing to take systematic withdrawals from the retirement portfolio is another strategy. It’s important when setting up and monitoring this plan that the joint lifetime horizon is considered.
  • A contingency fund, set aside to meet the uncertainty of longevity, may also be available to meet this need. Another contingency plan is to use home equity to support the surviving spouse through a reverse mortgage or simply by selling the home to support alternative housing or care needs.
  • Long-term care planning for the surviving spouse is more critical, as she will not have her spouse to care for her. Some long-term care policies allow couples to pool benefits, so if benefits haven’t been used up for the first spouse to die, they can be used by the second spouse.
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Risk No. 16: Unexpected Financial Responsibility Risk

Retirement Risk #16 Inforgraphic

Many retirees have additional unanticipated expenses during the course of retirement, in many cases due to family relationships and obligations.

Lisa’s adult child, a single mother, loses her job and needs assistance. Lisa decides to pay her daughter’s mortgage until she gets back on her feet. Lisa wants to validate that she can afford this expense. She does not want to be in the position to help her children early in retirement only to become a financial burden to her children later in retirement.


  • Figuring out how much retirees want to help their families financially is an issue that should be part of the retirement income planning process—and it is critical to get the perspective of both spouses. How much to give, what to give, when to give it and who should get it are all questions that need to be answered.
  • This needs to be done in the context of balancing family needs with financial security in retirement. Building a sustainable retirement income plan helps to make it clearer how much money is available. Also, framing the issue in terms of “giving too much can lead to financial dependence on children later” helps to make the boundaries clearer, too.
  • Once these decisions have been made, clients should in many cases have conversations with family members—and an advisor can help to facilitate these conversations.
  • Addressing those truly unexpected family circumstances is not as easy. But here the value of having built a clear retirement income plan that the couple buys into may really pay off when having to make quick decisions when the unexpected arises.
  • Second, clients should be encouraged beforehand to reach out to their advisors when such events arise. Just taking the time to meet with a more dispassionate third party can help provide some emotional distance when important financial decisions have to be made.
  • The advisor can also help identify both the short-term and long-term consequences of decisions. What is so different about retirement is that unless going back to work is an option, resources are finite and cannot be replenished.
  • In a crisis help doesn’t always have to mean financial support. Retirees can help their adult children and grandchildren by providing emotional support, help with chores and have the time and distance to look for outside resources that can help.
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Risk No. 17: Timing Risk

Retirement Risk #17 Inforgraphic

Also known as point-in-time risk, timing risk considers the variations in sequences of actual events that can have a significant impact on retirement security. There are just some factors outside of your control. Depending upon when you retire, you may, for example, face high inflation or low interest rates.

Patty retired in 1974. For every $1,000 per month of income she needed required $3,379 25 years later (1999)

Mary Lou retired in 1986. For every $1,000 per month she needed required $2,064 25 years later (2011)

For Mary Lou, prices increased 206%. For Patty, prices over the same number of years increased 337%!


  • Figuring out how much retirees want to help their families financially is an issue that should be part of the retirement income planning process—and it is critical to get the perspective of both spouses. How much to give, what to give, when to give it and who should get it are all questions that need to be answered.
  • This needs to be done in the context of balancing family needs with financial security in retirement. Building a sustainable retirement income plan helps to make it clearer how much money is available. Also, framing the issue in terms of “giving too much can lead to financial dependence on children later” helps to make the boundaries clearer, too.
  • Once these decisions have been made, clients should in many cases have conversations with family members—and an advisor can help to facilitate these conversations.
  • Addressing those truly unexpected family circumstances is not as easy. But here the value of having built a clear retirement income plan that the couple buys into may really pay off when having to make quick decisions when the unexpected arises.
  • Second, clients should be encouraged beforehand to reach out to their advisors when such events arise. Just taking the time to meet with a more dispassionate third party can help provide some emotional distance when important financial decisions have to be made.
  • The advisor can also help identify both the short-term and long-term consequences of decisions. What is so different about retirement is that unless going back to work is an option, resources are finite and cannot be replenished.
  • In a crisis help doesn’t always have to mean financial support. Retirees can help their adult children and grandchildren by providing emotional support, help with chores and have the time and distance to look for outside resources that can help.
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Risk No. 18: Public Policy Risk

Retirement Risk #18 Inforgraphic

An unanticipated change in government policy with regard to tax law and government programs such as Medicare and/or Social Security can have a negative impact on retirement security.

Walt has saved diligently for retirement only to find the government has adopted “means testing” and he is no longer eligible for certain programs because his income is too high.

Kathy, who has decided to age in place, may be affected by significant increases in property taxes.


  • It may not be any easier to predict changes in public policy than it is to predict other risks. However, in some cases there are political or economic realities that do foretell possible changes. In this case taking these into consideration in the planning process can be the responsible course of action. When projecting Social Security benefits for a 30-year-old, for example, it makes perfect sense to discount current benefits somewhat.
  • At the same time, it’s important to consider whether changes will have any grandfathering provisions. Again going back to Social Security, in the past when changes were made to the system, they did not affect those in or near retirement. However, other provisions, like tax rate changes under the federal income tax system typically do not have grandfathering provisions. Also, there may be prospective effective dates providing some planning opportunities.
  • The role of the advisor here—and a clear advantage for a client working with an advisor—is to stay current on policy changes, planning opportunities and effective dates, and the impact that the change will have on the plan.
  • It’s hard to plan for future law changes, but there are several options in the tax area. One is to use tax-free investments such as municipal bonds so that if marginal tax rates increase that income will not be affected. Even better is to use Roth IRAs and Roth Accounts to get tax-free growth—which allows the taxpayer to prepay taxes—locking into current rates, in case future tax rates increase. The one caveat here is that if the tax system changes with new taxes added such as a consumption tax—then the Roth tax vehicle does not protect against additional taxes.
  • Adding Roth IRAs also creates some tax diversification—providing for a hedge if tax laws change. With uncertainty, having a combination of taxable, tax-deferred and tax-exempt accounts allows for better planning in times of change. You can argue that having diversification in other ways in a retirement income plan may provide some of that same protection—for example, having annuities, life insurance, cash and a diversified portfolio from which systematic withdrawals are taken can provide against policy changes that affect any of these resources separately.
  • At the same time, it is important to retain enough flexibility and liquidity in the plan to react to changes as well. Having a cash reserve provides a cushion and so does a contingency fund—using some of the same strategies that we discussed before.
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The RICP® curriculum gives you answers to the most complex, and relevant, matters as they relate to retirement income planning. These answers come to you in the format of video interviews from a cadre of 38 practitioners, academics, company representatives, and software vendors who unveil their latest thinking on the topics that matter most to you and your business.

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  • Create a retirement income plan
  • Identify strategies to address income gaps
  • Mitigate risks like taxation, estate challenges, and more
  • Determine the optimal retirement age, and optimal age to claim
  • Social security for each client
  • Choose a tax-efficient strategy for plan withdrawals
  • Select funding for long-term care needs Board’s national exam

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