Bedford Federal Savings Bank
Financial Services
The 5 Key Retirement Risks





The five key retirement risks that most individuals and couples face are:



The definition of inflation is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could.

The average rate of inflation per year from 1950 through 2010 in the United States has been 3.81% as measured by the CPI (Consumer Price Index).  If you look at the data over a shorter time frame and exclude the higher inflation years of the 1970's and 1980's you get a slightly different number.  The average rate of inflation between 1990 and 2010 has been 2.81%.  From 1950 to 2010, there was only one year when the cost of living declined!  Click here to see historical inflation data.

Assume a couple that retired in 2000 had a retirement savings built up of approximately $500,000 at retirement.  This retirement savings would have had to grow to $637,147 by 2010 to maintain the buying power it originally had in the year 2000.  This is one example of the devastating effects that inflation can have on retirement. 

Source:  CPI Inflation Calculator,


Outliving Your Assets

Outliving your assets is a serious retirement risk and every precaution should be taken to avoid this potential retirement pitfall.  Advances in healthcare and quality of life over the last century have translated into longer life expectancies.  

At age 65, your probability of living to age 85 if you are a male is 53% and it is 65% if you are female.  The probably of one member of a 65 year old couple living to at least age 85 is 84%.  The odds are 840:1000.  Is that a risk worth insuring against and preparing for?  The probability of at least one member of a 65 year old couple living to age 95 is 36%.  (Source:  Society of Actuaries Annuity 2000 Mortality Tables)

Designing a diversified retirement plan to fit your needs and objectives can help you battle inflation and it can help lower the possibility that you will outlive your assets. 



 A portfolio strategy designed to reduce exposure to risk by combining a variety of investments , such as stocks, bonds, and real estate, which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio.  Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.


Withdrawal Rate During Retirement

One of the most critical decisions to make once you retire is determining how much you can safely withdraw from your retirement savings each year.  Developing a plan for spending down your assets can be extremely challenging, especially since you don’t know how long you’ll live.

Withdrawal risk is the risk of drawing down your assets too aggressively to meet your spending needs, with the possibility of depleting your assets before you die. It’s a risk that keeps many retirees up at night.

What is a reasonable withdrawal rate?

When approaching retirement, the first question many investors ask is how much money they can
safely extract from their portfolio each year. A simplistic way of looking at this is a withdrawal rate,
expressed as a percentage of your investment assets.















Historically, as shown above, withdrawal rates that could support an investor over a typical 30-year
retirement, varied from 4.2% to 5.9%, depending on the asset allocation of the portfolio. Of course,
if you lived longer than 30 years, these withdrawal rates would need to be lower.

Many investors are too optimistic and hope to withdraw 10% or more of their portfolio annually to
support their desired retirement lifestyles, which is sure to rapidly deplete their portfolio. Other
investors are too pessimistic; they construct a portfolio of CDs, bonds, and dividend-paying stocks
and only withdraw
interest and dividends from their portfolio, vowing never to touch principal.

Unfortunately, there is no magical formula or simple solution. The optimal withdrawal rate will vary
from investor to investor, and may vary over time. 

Many financial planners consider a withdrawal rate of 4%–5% as being reasonable and sustainable
over a long retirement horizon. This withdrawal rate will have a profound impact on how much money
you need to accumulate before retiring and when you can retire. It’s likely to shock anyone who is a
bad saver.

For example, a $1 million portfolio with a 4% withdrawal rate would produce only $40,000 in income
in the first year. If you’re trying to replace $100,000 in income and estimate $20,000 will come from
Social Security, you’ll probably need to save $2 million before retiring.

Determining the appropriate withdrawal rate will be based on many factors such as longevity,
spending, inflation, asset allocation, and annuitization. Some financial planners may be more
comfortable with withdrawal rates as high as 5%–7%, but even then, they would want to adjust
the plan each year based on spending, portfolio performance, and other life events.

How does the timing of portfolio returns affect planned withdrawals?

The sequence of market returns affects how long your retirement portfolio can sustain your desired
withdrawals. When poor returns occur early in your retirement, as you begin taking distributions from
your portfolio, the risk that your portfolio will run out of money dramatically increases. Financial
planners call this “point in time” risk.



Planning for increasing healthcare costs and expenses is a necessary reality in in today's retirement landscape.  The fact is that healthcare costs keep going up and up.  Healthcare inflation affect retirees more than it affects any other segment of our population because retirees are living longer and medical treatments are improving.  This issue is not only a matter of making sure you are financially prepared for healthcare costs throughout retirement but also that you and your loved ones are prepared for the difficult healthcare decisions that might have to be made at some point along your journey.  Designing and reviewing a healthcare plan that involves your loved ones is an important part of a sound financial plan. 
















There is no gaurantee that a diversified portfolio will enhance overall or outperform a non-diversified portfolio.  Diversification does not protect against market risk. 







Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.  Insurance products offered through LPL Financial or its licensed affiliates.  Bedford Federal Savings Bank and Bedford Federal Financial Services are not registered broker/dealers and are not affiliated with LPL Financial.  The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN and FL.

Not FDIC Insured Not Bank Guaranteed May Lose Value
Not Insured by any Federal Government Agency Not a Bank Deposit


Back to Top