For retirees, there is a need to manage a range of risks, both Financial and Non-Financial, as follows:
- Financial risks
Longevity risk
Due to medical advances, we are all living longer. Longevity risk refers to the possibility that we may outlive our retirement savings.
Inflation risk
Inflation risk refers to the way the purchasing value of our money declines over time, due to rising prices.
Market Risk
Market risk refers to the potential for financial loss, due to fluctuations in market prices. This type of risk affects all investments. It cannot be completely eliminated; however, it can be managed through diversification of investments.
Sequencing risk
Several consecutive years of falling prices, especially early in retirement, can mean that progressively more assets need to be sold to generate sufficient retirement income. This can have a major effect on the life of the remaining assets and their capacity to generate income for a long retirement.
Legislative risk
Your retirement income may be affected by legislative changes which alter the type and rate of tax you pay, as well as changes to your entitlement to benefits like the age pension or health cards.
- Non-Financial risks
Health
Better health leads to a more satisfying retirement, because it lets you do so many more things and can save you money on medical bills. That’s why it’s important to invest in good health early in life. Having a healthy weight and a basic level of fitness extends your life and your enjoyment.
Loss of identity
Finding an identity after work can be a real issue. For some people, work is their identity. Scientific studies show that this can be a big problem, especially for men.
Lack of purpose
Work gives a sense of purpose and structure. Without work, people can struggle to adapt. Being open minded and learning new things helps. You need to challenge your brain every day. Also, giving back to the community where you can, is a great idea.
Relationships
Research has shown this is a strong predictor of a happy retirement. Make sure that you retain a significant circle of friends and see them often.
In summary, Retirees face many challenges and managing money is just one of them. The non-financial risks are just as important and need to be carefully considered and planned for.
