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Unlocking Retirement Secrets: Four Risks to Navigate

By: Scott Van Den Berg, CFP®, ChFC®, CEPA®, AIF®, CRPS®, CMFC®, AWMA®

Navigating retirement planning is akin to embarking on an adventure through unfamiliar waters. It may seem daunting at first, but it's a challenge that can be successfully managed with the proper guidance and strategies. Just as adventurers equip themselves with maps and tools, a well-prepared approach to retirement planning empowers you to steer your financial future with confidence and control, helping to ensure a smoother journey toward financial security and peace of mind.

The financial planning and execution of your plan in the pre-retirement (accumulation phase) and post-retirement (distribution phase) are pivotal. The stark reality is that your financial resources must sustain you for a lifetime. This challenge is particularly significant when considering risk tolerance and making decisions that align with long-term financial security. However, with careful thought and the right strategies, you can navigate life’s financial journey with confidence and control.

As you transition into retirement, four significant risks come to the forefront: liquidity, longevity, lifestyle, and sequence of return risk. These are not just theoretical concepts but real challenges that can significantly impact retirement stability. To help ensure a secure retirement, it is crucial to move beyond traditional planning methods and confront these imminent risks head-on. This proactive approach will give you a sense of preparedness and control over your financial future.

Let's take a closer look at these four risks:

Liquidity Risk: Liquidity risk emerges when unforeseen financial demands, such as urgent home repairs or unexpected medical bills, drain reserves intended for sustaining retirement. Adequate liquidity becomes essential as it serves as a buffer to manage unexpected life events, such as family health crises or market downturns, safeguarding financial stability. Having readily accessible funds allows you to address sudden expenses without compromising your long-term retirement plans or facing undue financial strain and provides a sense of relief and security.

Longevity Risk: Longevity risk involves ensuring that financial resources last throughout retirement and avoiding the risk of outliving your savings. This aspect of financial planning emphasizes the necessity of resilient strategies that promote financial independence. Such methods enable you to comfortably manage your daily living expenses and fulfill financial obligations without imposing a financial burden on others. It's about securing a stable financial foundation to sustain you through your retirement years, maintaining a high quality of life and autonomy.

Lifestyle Risk: Lifestyle risk revolves around maintaining a desired standard of living and enjoying retirement with increased discretionary spending. However, enhanced discretionary spending has the potential to impact retirement sustainability. This aspect of retirement planning generally prioritizes sustaining or improving your current lifestyle rather than adopting a more frugal approach. Typical lifestyle objectives include travel, leisure activities, personal development, social engagement, and providing for loved ones without jeopardizing your long-term financial security.

Sequence of Return Risk: Sequence of return risk is akin to facing a perfect storm early in retirement: a period of poor market performance that swiftly erodes your portfolio, even if long-term returns are generally favorable. This phenomenon can dramatically impact the sustainability of retirement income, highlighting the critical need for robust planning and investment strategies that proactively mitigate such risks. Building a diversified portfolio, incorporating assets with different risk profiles, and adopting dynamic withdrawal strategies are just a few tactics that can help shield your retirement nest egg from the adverse effects of sequence of return risk.

Conclusion for Unlocking Secrets to the Retirement Journey:

Transitioning from work to retirement often involves a significant mental and emotional shift. For many, it marks a change from the structured routine of work life to a more flexible and leisure-focused lifestyle. This transition can bring feelings of excitement and freedom but also challenges as individuals navigate new roles, identities, and sources of fulfillment.

Financially speaking, transitioning from work and relying on your employment income to being retired and managing your passive retirement income marks a pivotal moment in your financial planning. While success during working years often hinges on asset allocation and investment discipline, retirement introduces the reality that accumulated wealth must last indefinitely—an awakening to the challenges of the four risks we have discussed. 

After having been a financial advisor for more than 32 years and working with hundreds of clients, it has been my experience that developing and maintaining a comprehensive financial plan plays a crucial role in achieving better financial outcomes. Tailoring a retirement plan that addresses your specific liquidity, longevity, lifestyle, and sequence of return risks is important for creating a resilient and adaptable strategy. 

Instead of solely focusing on asset allocation or market performance, a robust plan considers these various financial and lifestyle factors, running multiple “what if” scenarios and stress tests to help ensure your plan aligns with your goals. At the end of the day the goal is to bring you peace of mind about your financial future.

For over 50 years, Century Management Financial Advisors has taken a personalized and comprehensive approach to working with clients. Operating as a multi-generational family business, we understand the dynamics and challenges of managing family wealth across generations. Partner with Century Management and let us help you confidently navigate your financial future. Contact us today to schedule a consultation.

Warm regards,

Scott S. Van Den Berg

Scott Van Den Berg, CFP®, ChFC®, CEPA®, AIF®, CRPS®, CMFC®, AWMA®


Century Management Financial Advisors - Since 1974 

Century Management ("CM") is an independently registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Century Management is also registered as a Portfolio Manager in the Province of Ontario.

Past performance is not indicative of future results. This discussion is educational in nature and is not intended to be investment advice. All investments involve risk and unless otherwise stated are not guaranteed. A full description of our Firm’s business practices, including our Firm’s investment management services, wealth plans and advisory fees, are supplied in our Form ADV Part 2A and/or Form CRS, which is available upon request and also on centman.com. CM-2024-06-10