Market risk

Unexpected changes in investment returns, inflation, or other market variables.

How to handle it: Think carefully about the asset allocation of your portfolio. The right allocation for you will depend on your intentions for your money—do you want to spend it all, leave something for your kids, or keep growing it for future generations? In any case, you’re likely to need a mix of stocks and bonds that will keep your nest egg protected without depleting it too quickly.

Also, make sure to keep money for your immediate spending needs in a safe, accessible location, like a bank account or money market fund.

Historically, the stock market has had a negative calendar-year return over ¼ of the time. Source: Vanguard.

Longevity & mortality risk

Living longer than your savings will support—or for substantially less time than expected.

How to handle it: First, plan as though you’ll live to a ripe old age—like 95 or 100. You may want to consider working longer or taking on a part-time job in retirement, as well.

You can also use an annuity to guard against longevity risk, by annuitizing enough of your portfolio to cover any basic living expenses that are greater than the guaranteed income you might have from Social Security or a pension.

To offset the risk that one spouse or partner will survive the other for a great number of years, consider life insurance.

In the U.S., there’s a 66% chance that at least 1 spouse in a married couple will live to age 90. Source: Society of Actuaries, based on a 55-year-old nonsmoking couple in average health.

Health risk

Long-term health issues that drain your savings.

How to handle it: First, you’ll need to think about 3 things: How healthy do you expect to be, based on your current situation and your genetics? What health needs would be covered through your health insurance, whether it’s employer-provided insurance or the Medicare plan you’ll choose? Finally, what level of care is important to have? For instance, would just any nursing home be acceptable to you, or would you prefer private nursing if it’s needed?

After you know the answers to these questions, you’ll be better prepared to decide on your strategy, which could include saving more for health care, buying long-term care insurance, relying on Medicare and Medicaid, or buying a supplemental policy.

On average, a 1-bedroom unit in an assisted-living facility costs $3,750 per month.

Event risk

Being hit by an unexpected event with a large financial impact.

How to handle it: Most retirees experience at least 1 unexpected financial shock, so save more than the bare minimum you expect to need. And make sure you have adequate insurance coverage!

You’ll also want to have some flexibility in the amount you plan to withdraw from your savings each year. A strategy like “dynamic spending” can help.

72% of current retirees report dealing with at least 1 financial shock in retirement. Source: Society of Actuaries 2015 Risks and Process of Retirement Survey.

Tax & policy risk

Changes to laws that cause you to have higher taxes or fewer resources than expected.

How to handle it: Recent history certainly validates that these types of changes are hard to predict, and there’s not a lot you can do to impact them directly. One way to prepare is to make sure you have a variety of accounts with differing tax treatment (like Roth and traditional IRAs as well as taxable accounts), so you can be flexible with your withdrawal strategy.

To guard against unfavorable changes in things like Medicare coverage and Social Security income, it’s always a good idea to save more than you think you’ll need.

In 2018, the income thresholds at which seniors are subject to Medicare surcharges were lowered by up to 25%. Source: IRS.

We can do this!

Want to know more about building a solid retirement plan? Read our research paper or set up time to speak with a Vanguard advisor.

Vanguard’s roadmap to financial security: A framework for decision-making in retirement


Stock market returns are based on the S&P 90 Index from 1926 through March 3, 1957; the S&P 500 Index from March 4, 1957, through 1974; the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000 Index) from 1975 through April 22, 2005; the MSCI US Broad Market Index from April 23, 2005, through June 2, 2013; and the CRSP US Total Market Index thereafter.

All investing is subject to risk, including the possible loss of the money you invest.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.