Six risks in retirement

Most retirement plans are built to answer one question: will the money last if things go roughly the way we expect? That is a fair question. It is just not the question that breaks people.

What breaks people is the thing nobody priced in. A spouse dies eight years earlier than the plan assumed, and the household loses a Social Security check in the same year its tax brackets get cut in half. The market drops 20 percent in the second year of withdrawals. A parent needs memory care, and the only place to find $130,000 a year is the account that was supposed to fund the next two decades.

Six risks account for most of the damage. They overlap, they feed each other, and hardly anyone tests all six at the same time.1. Longevity

Living a long time is not a risk in any ordinary sense. It is the goal. It belongs on this list because it multiplies everything else. Every other risk here gets more expensive the longer you are around to absorb it.

The Social Security Administration’s numbers are the ones worth sitting with: roughly one in three of today’s 65-year-olds will reach 90, and about one in seven will reach 95. For a married couple, the odds that at least one of them is still here at 90 run considerably higher than the odds for either spouse alone, which is why planning a couple’s retirement to a single life expectancy gets it wrong twice.

And average life expectancy is the wrong planning number anyway. Half of people beat the average. That is what an average is. A plan built to the middle of the distribution has a coin flip sitting inside it, and the losing side of that flip is being 92 with a portfolio that was designed to end at 85.

2. Liquidity

Liquidity risk is having money and not being able to reach it. Or not being able to reach it without a surrender charge, a tax bill, or a forced sale at the worst possible moment.

It hides in reasonable places. Home equity. An annuity still inside its surrender period. Equity in a closely held business. Private real estate and other alternatives that trade infrequently by design. None of those are mistakes on their own. They become a problem when they are the only thing standing between a retiree and a bill that came due this month.

Health care is the usual trigger. Fidelity released its 25th annual retiree health care estimate this week: a 65-year-old retiring in 2026 can expect to spend an average of $185,500 on health and medical expenses over the rest of retirement, up 7.5 percent from last year’s figure. That number does not include long-term care.

Long-term care is its own conversation. The Department of Health and Human Services estimates that close to 70 percent of people turning 65 will need some form of it. CareScout’s 2025 Cost of Care Survey, released in March, puts the national median at $129,575 a year for a private room in a nursing home, $6,200 a month for assisted living, and $35 an hour for a non-medical caregiver, which works out to about $80,080 a year at 44 hours a week.

The straightforward answer is a cash reserve with one job: cover living expenses long enough that you never have to sell an investment at a loss to pay this month’s bills. Call it a volatility buffer. A plan without one is not wrong, exactly. It is just quietly betting that nothing happens for a while.

3. Inflation

Retirees do not buy the CPI basket. They buy a different one, weighted more heavily toward the thing that inflates fastest, and the last few years have made that painfully clear.

Social Security’s 2026 cost-of-living adjustment came in at 2.8 percent. Over the same stretch, the standard Medicare Part B premium went from $185 to $202.90, a jump of 9.7 percent, which CMS announced last November. That is the third year running that Part B has outpaced the COLA. For the average retiree, roughly a third of this year’s raise was gone before the check arrived.

Stretch that over a real retirement and the arithmetic gets uncomfortable. At 3 percent general inflation, a household spending $6,000 a month today needs about $14,600 a month thirty years from now to buy the same groceries and pay the same utility bills. Health care, historically, has run faster than that.

This is the risk that punishes the most conservative plans hardest. A portfolio that is entirely fixed and entirely guaranteed has solved for market risk by taking on inflation risk instead, and the second one is harder to see because it never shows up as a bad quarter. It just shows up as a slow, decades-long erosion of what the same dollar buys.

4. Market volatility

The part of market risk that actually matters in retirement is not how far the market falls. It is when it falls.

During the working years, a downturn is an inconvenience. There is time to recover, and new contributions are buying shares at a discount, so a falling market is partly working in your favor. The moment withdrawals begin, that flips. A loss that arrives in the first few years of drawing income does permanent damage, because every dollar withdrawn from a shrunken balance is a dollar that never gets to participate in the recovery. Economists call it sequence of returns risk.

Here is the piece that surprises people. Take two portfolios with the same starting balance, the same withdrawal, and the identical set of annual returns. Change nothing but the order those returns arrive in. One of them can finish thirty years with millions left over and the other can run dry with years of retirement still to fund. Same average return. Different sequence. That is why the average return, the number most people fixate on, is close to useless for anyone in the distribution phase.

The S&P 500 lost 37 percent in 2008. It lost roughly 18 percent in 2022. Neither was a once-in-a-century event, and there will be another one. The useful exercise is not predicting it. It is running the number now: if a 2008 happened this year, how much would have to come out of the portfolio anyway, and what would that do to how long the money lasts? Most people have never actually run it.

5. Mortality

This is the one that gets planned for least, mostly because nobody enjoys the conversation. It is also the one that tends to do the most damage in a single year.

Start with income. When the first spouse dies, the household does not keep both Social Security checks. It keeps the larger one. If those checks were $2,400 and $1,800, the survivor’s income drops by $21,600 a year, permanently, in a year when almost nothing else about the household’s cost of living got cheaper. Pension survivor elections work the same way, and that decision is usually made once, years earlier, in exchange for a slightly bigger monthly check.

Then the tax code makes it worse. The survivor files as a single taxpayer the following year. For 2026, the standard deduction is $32,200 for a married couple and $16,100 for a single filer. The 12 percent bracket runs to $100,800 of taxable income jointly and stops at $50,400 for a single filer. So the survivor is often living on a similar amount of income with roughly half the room to earn it, and RMDs from the same accounts keep arriving on the same schedule. Advisors call it the widow’s penalty. Most households have never seen it modeled.

Business owners have a version of this that is larger and faster. If there is no buy-sell agreement, or there is one and nobody funded it, the surviving spouse inherits an illiquid asset and a set of partners who may not have the cash to buy it. That is not an estate planning oversight. It is a liquidity event with a deadline.

On the transfer side, the federal estate exemption sits at $15 million per person and $30 million for a married couple in 2026, so federal estate tax is not the issue for the overwhelming majority of families. The issues are smaller and more common. Beneficiary designations that were never updated after a divorce or a death. Accounts that pass by contract and override whatever the will says. A house left equally to three children who want three different things. These are cheap to fix while everyone is alive and expensive to fix afterward.

6. Taxes

A traditional 401(k) balance is not entirely yours. Part of it belongs to the IRS, and the only open question is what rate applies when the bill finally comes.

Most people assume that rate will be lower in retirement. For diligent savers it often is not. Required minimum distributions from a large tax-deferred balance can push income higher than expected, up to 85 percent of Social Security benefits become taxable depending on total income, and crossing an IRMAA threshold by a single dollar raises Medicare premiums for a full year. None of those show up on a statement. They show up on a return.

The opportunity sits in the gap years, the stretch after the last paycheck and before required distributions begin. For most households those are the lowest-taxed years of their entire adult lives, and most households spend them doing nothing about it. Partial Roth conversions sized to fill a bracket, rather than converting everything at once, are the usual tool. The discipline is picking a ceiling ahead of time and stopping there.

Worth noting for anyone 65 or older right now: the additional $6,000 senior deduction created by the One Big Beautiful Bill Act applies to tax years 2025 through 2028 and disappears after that unless Congress extends it. It phases out above $75,000 of modified AGI for single filers and $150,000 for joint filers. Whatever planning that deduction makes possible has a date attached to it.

The goal was never the smallest tax bill this year. It is the smallest total bill across the whole retirement, and those two answers frequently point in opposite directions.

These six do not sit in separate boxes. Longevity stretches every other one out over more years. Volatility is what turns an illiquid portfolio into a liquidity crisis. Mortality creates a tax problem the same month it creates an income problem. Inflation makes that tax problem compound. Solving them one at a time usually means solving one in a way that quietly makes another worse.

So the question worth asking about your own plan is not whether it is a good plan. It is which of these six it has a real answer for, written down, with a number attached. Most people work through the list and find they have three.

Three is a start. It is not a plan.

Sources: Social Security Administration; Fidelity Investments 25th annual Retiree Health Care Cost Estimate (July 2026); U.S. Department of Health and Human Services; CareScout 2025 Cost of Care Survey (March 2026); Centers for Medicare & Medicaid Services 2026 premium and deductible announcement; IRS 2026 inflation adjustments; Public Law 119-21.

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