The past few years have been a whirlwind for investors and retirees alike. After decades of low inflation and seventeen years of relatively stable markets, the post-pandemic economy ushered in a perfect storm: surging inflation, historic interest rate hikes, and high market volatility. These forces have shaken the foundations of traditional retirement planning and exposed weaknesses in many set-it-and-forget-it financial strategies.
Inflation peaked at over 9% in mid-2022, while energy and food prices soared—energy rising more than 17% and food more than 10% in a single year. Even now, inflation remains above the Federal Reserve’s target of 2%, and retirees are feeling the squeeze in everyday spending. At the same time, markets have been anything but predictable. The S&P 500 declined nearly 20% in 2022 before rebounding sharply in 2023, only to experience renewed turbulence in early 2025.
This uncertainty presents terrifying challenges for retirees living on a fixed income, but it’s also causing concern for Americans who are trying to build their retirement savings in a climate that feels anything but stable.
According to a recent report by the Federal Reserve, nearly half of all Americans have no retirement savings at all. And even for those who have diligently saved for retirement, relying on Social Security alone is not a sustainable plan. The average monthly Social Security benefit for a 65-year-old in 2023 was just over $2,600—barely $31,000 per year. That’s not exactly a luxury lifestyle, no matter where you live, especially when you factor in housing, healthcare, and inflation.
In our view, retirement plans often fail for one or more of five key reasons—and these risks are only magnified in today’s volatile environment. Let’s dig into each of these threats and discuss ways you can plan and execute a retirement income strategy that you can have a lot of confidence in.
1. Timing Risk
Retiring into a bad market is one of the worst possible scenarios for retirees. Every day, on average, 11,400 Americans turn 65, so no doubt thousands of us are now experiencing this particular form of anguish, as markets tumble and churn on tariff policies and other uncertainties.
Let’s say your plan has you withdrawing $40,000 a year from a $1 million portfolio. That’s a 4% withdrawal rate, generally considered sustainable. But if the market drops 30%, your portfolio shrinks to $700,000 overnight. Now that same $40,000 is a 5.7% withdrawal, which is potentially unsustainable, especially if recovery takes years. This scenario is going to force tough choices on the retiree.
Market corrections—drops of 10% or more from a previous market top—happen roughly every 1.8 years. Bear markets happen less frequently, every 5 to 6 years on average. If we just use a normal distribution, you should expect a serious market downturn in the first several years of your retirement, so it’s critical to take this threat seriously.
Retirement income strategies must have a built-in expectation that down years will happen, and could happen shortly after retirement begins. Rigid withdrawal plans that don’t account for market cycles can lead to early depletion of assets, which translates in real-life into a lifestyle hit—or worse.
2. Inflation
Here’s a good definition for inflation: it’s the silent erosion of purchasing power. Everyone is aware of the harmful effects of inflation, but even when it’s under control, it can quietly erode your nest egg over time. The Fed targets 2% annual inflation, and did a great job keeping it around that number for decades, until the pandemic disrupted supply chains and fuelled massive government spending. Take note: if inflation were to average 2% per year for 36 years, it would cut your dollar’s purchasing power by 50%.
Inflation is one of the most persistent threats retirees face, for the simple reason that your income may be relatively fixed while your expenses continue to rise. According to the U.S. Bureau of Labor Statistics, inflation averaged about 3.1% annually over the last 100 years, but we’ve seen spikes far above that in recent years—over 7% in 2021 and 6.5% in 2022.
For retirees, groceries, healthcare, travel, and utilities will all likely cost significantly more in 5–10 years than they do today. A $60,000 retirement lifestyle today could require $80,634 in 10 years if inflation were to average 3%, about what it is right now.
It’s critical that you build inflation protection into your retirement strategy. Consider cost-of-living adjustments (COLAs) for income streams, and maintain exposure to stocks, even in retirement, to help outpace inflation.
With healthcare costs rising faster than overall inflation, the risk is even more acute for retirees. A significant portion of a person’s lifetime healthcare spending occurs during retirement, with estimates suggesting nearly half of lifetime healthcare costs occur after age 65. Specifically, a healthy 65-year-old couple can expect to spend around $315,000 on healthcare expenses during retirement, according to studies.
For those who are not healthy or become unhealthy, the news gets much worse. In the U.S., the average monthly cost for assisted living is around $5,350, while memory care facilities typically cost around $6,935 per month. In some parts of the country, those numbers are far higher.
Your retirement strategy must include inflation-hedging assets, such as stocks, real assets, or TIPS, and income strategies that adjust over time. We’ll dig deeper into income strategies a bit later.
3. Longevity Risk
People are living longer than ever. That’s a wonderful thing—unless your money runs out before you do. A 65-year-old today has a 50% chance of living into their 90s, according to the Society of Actuaries. One in five retirees will live past age 95, yet many retirement plans only forecast income needs through age 85 or 90.
This creates what’s called longevity risk—the chance that you’ll outlive your savings. The longer you live, the more you’re exposed to inflation, healthcare costs, market downturns, and the need for income beyond your plan’s original timeline.
A 2023 report by the Employee Benefit Research Institute found that more than 40% of retirees underestimate their potential lifespan by 5–10 years. If you have an existing plan, you should check the longevity assumptions and consider upping them, particularly if you’re married.
Your retirement income plan should assume age 95 or 100, not 85. It should also incorporate lifetime income sources such as annuities, pensions, and Social Security delay strategies.
4. Risk Drift
As people age, their emotional and financial capacity to handle risk tends to decline. This isn’t just about personal preference—it’s grounded in psychology, physiology, and financial reality. Psychologically, older individuals become more loss-averse. They feel the pain of a 10% market drop far more acutely than a 30-year-old.
Physiologically, the stress response (fight-or-flight) becomes more sensitive with age, making it harder to stay calm during volatility. Financially, retirees often have fewer years to recover from market downturns and fewer income streams to fall back on.
This natural aversion to risk affects planning in several important ways. First, and most importantly, portfolio composition must change over time. Most retirees start with some exposure to growth assets (like stocks) to combat inflation and preserve purchasing power. But as they age, they’ll likely want more stable, lower-volatility assets, like bonds, cash, or annuities.
It’s just not realistic to expect risk tolerance to stay fixed for 30 or 40 years, so plans need to reflect that reality. Older Americans typically prefer a portfolio with less exposure to sharp drawdowns, seeking a smoother ride, even at the expense of some upside.
5. The Human Element
Markets are erratic and unpredictable, and humans are emotional. Unfortunately, those two realities of life don’t mix well. It’s a recurring pattern: investors chase returns in bull markets and flee risk in bear markets. When the markets turn down, many investors panic and sell, often near the bottom. Behavioral economists have shown that emotions consistently sabotage long-term returns. Younger people have the time to repair the damage, but retirees often do not.
Warren Buffett said it best: “Be fearful when others are greedy, and greedy when others are fearful.” But that’s easier said than done. An effective retirement plan must account for human behavior, not just economic theory. This means having guardrails, structure, and a plan that compensates for the emotional side of investing.
Common Planning Solutions: Dangerously Flawed
Over the years, two major retirement income strategies have emerged: systematic withdrawal planning and bucket planning. Each solves some of the five risks above, but not all.
The systematic withdrawal strategy involves drawing a set percentage or dollar amount from a diversified portfolio each year. The “4% rule” is a classic example. But this method fails if the market drops early in retirement, because you’re forced to sell low. Timing risk is not accounted for by this strategy.
Systematic withdrawals can be efficient and tax-friendly—but emotionally, they’re tough to stick with during market downturns, which we’ve dubbed the human element.
Bucket planning separates your money into short-, medium-, and long-term “buckets” based on time horizon and risk. While it can help clients visualize where their income will come from, it often lacks flexibility. If you stick to the original risk order (typically cash, then bonds, then stocks), inflation can burn up your cash and bonds quickly.
Bucket planning also flies in the face of risk drift, leaving the retirees nearly fully invested in stocks when they are superannuated, exactly when they don’t want to be.
A Better Way: Time Optimized Planning™ (TOP)
TOP combines the best of systematic and bucket planning, while eliminating their biggest weaknesses. TOP is designed to address all five core retirement threats in one dynamic strategy.
Unlike both of the common methods, TOP adjusts annually, accounting for both market performance and client circumstances. Does it even make sense to make a plan when you’re 65 that you will not adjust again for the rest of your life? If you don’t do that during your working years, when you have so much more flexibility, why would you stop in your golden years?
Rather than being agnostic to real-life events, which include both bull and bear markets, periods of higher inflation, and changes to the retiree’s personal health and circumstances, TOP rebalances the plan every year, selecting income from the best-performing assets, avoiding the sell-low trap. When the markets enjoy up years, income can come from stocks; when stocks are in a down cycle, cash and either bonds or annuities can provide the income, giving stocks time to recover.
TOP understands the reality of risk drift and is designed to reduce exposure to volatility as clients age. Should a 100-year-old have any stocks at all? According to the New England Centenarian Study, the life expectancy of a 100-year-old American is just three years, which financial planners consider too brief a period to risk exposure to stocks.
The human element is arguably the most difficult challenge to a successful retirement plan, but TOP makes this easier by creating a time buffer between the retiree’s stocks and their need for income. If you had enough cash, bonds, and annuities to provide income for ten years, would you not feel more sanguine about the vicissitudes of the stock market? TOP is designed to reduce panic-based decisions by supporting behaviorally smart investing.
TOP even adds an additional layer of real and emotional security by setting aside legacy assets in a separate, growth-focused account for future generations. This is fully consistent with hope for the best (a legacy for loved ones and charity) and plan for the worst (the combination of threats and circumstances overwhelms the plan) by providing an additional source of income in your final years.
Peace of Mind, Not Just a Plan
If the last few years have taught us anything, it’s that retirement planning needs to be adaptive, realistic, and behaviorally intelligent. Inflation, volatility, and longer lifespans aren’t going away—and neither is the need for income that lasts the rest of your life.
Set-it-and-forget-it approaches might be easier in the short term, but peace of mind comes from a plan that adjusts as life unfolds. We built Incomize™, our retirement income solution, to provide clarity in uncertain times. It’s part of our Family Office services and includes a no-cost, no-obligation custom retirement income report designed around your unique situation.
