The Real Risks of Retirement

When you’re planning for retirement, you think about how much money you’ll spend, places you’d like to visit, what health care will cost. But do you think about risk? And do you think about the right risks?

By that, I mean, have you considered any risk other than running out of money?

There are other risks to face.

No generation before today, for one, has ever looked at such a long retirement with largely themselves alone to rely on.

And we’ve seen two market crashes in a decade — 2000 and 2008 — only to raise our heads up and go through a global economic slowdown. Thanks a lot. What’s next?

Some risks you can actually control, however.

You can't predict where the markets will be be six or 12 months from now. But you can tell yourself you’re going to get a handle on the other things that have as much of an impact on your retirement as your portfolio’s performance.

These are non-market risks that often arise within your own household.

Here’s my list of the special risks faced by current and future retirees:

• Living a very, very, very long life
• Having too much of your wealth in your house
• Not saving enough
• Having to take care of your parents
• Having to support your adult children
• Paying oversized college costs
• Not having control of your budget
• Forgetting about inflation
• Persistently low returns in the markets and low interest rates
• Ultra-volatile market swings just as you stop working

Oh, and, timing. All of these things could happen around the same time.

A silly little step you can take toward addressing these risks is to drop the word "risks" and substitute "issues." If these are "issues," maybe someone can do something about them. Maybe that person is you.

I find that some clients don’t realize that they themselves are the ones who determine that their financial plan won’t work. Hoping that your portfolio grows to the sky so it can support you isn’t really much of a defense against overspending. Overspending is something you control.

Or maybe it’s not you. Having your elderly parents to take care of, to worry about, to help financially, is not exactly a choice.

But when you factor something like caring for an elderly parent into your retirement plan, you can start to walk around this issue, take its measure, and begin to see ways to cope. Or begin to see that you can’t cope with this responsibility. You may have to find other resources — speak to other family members, seek out public programs, look for nonprofit groups that help with such things as respite care.

Coping with the issue can mean raising your hand, saying you can’t really handle it all, and asking for help.

Or it can mean that you did your research and you didn’t find a solution for every conundrum. Coping with the issue can mean you realize it’s a pothole and you’re going to hit it.

Okay, so you might live to be 100 or close to it. Did you set a portion of your portfolio aside for very long-term growth? Or did you consider delaying Social Security benefits until age 70 — and by doing that, pump up your check for the rest of your life, no matter how long?

Or, let’s say you figure you will have to live with low returns for a long while. Have you allocated enough to cash or short-term investments to handle your spending needs? Or did you divide your portfolio into buckets for different purposes? And then did you come up with an income strategy for one bucket so that you don’t have to dip into your other buckets?

When you strategize like this in the face of risk, it’s easier to see the actions you can take, even if you can’t make the risk go away.

As financial planners, we don’t often discuss these non-market risks. The one risk we do talk about with clients all the time is market risk, because we know quite a bit about that. Markets are difficult and ever-changing. While that may seem impenetrable to the client, it doesn’t really intimidate us.

But the real risks to the client’s retirement? Many of them lie out there, beyond investments. They may be outside a financial adviser’s perfectly organized financial plan, but they still exist. And clients have to steer around them.

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Harriet J. Brackey, CFP, is the co-chief investment officer of GSK Wealth Advisors, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.