Risks Faced in Retirement #10: Liquidity Risk

I recently read a definition of liquidity risk that called it “the inability to have assets available to financially support unanticipated cash flow needs.” You could translate that as: “Stuff happens and you need to have enough cash to cover that stuff when it happens.” The “stuff” is an unusual, nonrecurring expense like a big car repair or dentist bill.

Liquidity risk can be especially dangerous if you are retired and living on your investments.

Risks Faced in Retirement #9: Interest Rate Risk

Whether they’re going up or down, interest rates can have a big effect on your investments, and therefore have the potential to pose a risk (or a benefit) to your financial wellbeing.

When interest rates go up (as they’ve been doing), bond investments tend to go down, which could decrease the value of any older bonds you possess. For example,

if you have a bond that pays 3 percent and rates rise to 5 percent on the open market,

Risks Faced in Retirement #8: Market Risk

People in their 20s and 30s are often told that they can invest aggressively, especially when they don’t anticipate that they’ll be living on their investments for years. But once you get within 5 years of retirement, I think you should start thinking about preserving what you already have. How do you do that? Part of the process is to understand the threats to your financial wellbeing—like market risk.

Retirement researcher Wade Pfau studied the impact of market risk on retirement income planning by measuring 151 hypothetical portfolios.

Risks Faced in Retirement #7: Frailty

As financial advisors, we help clients with their investments. But there’s more.  In my opinion, a good financial advisor looks at the risks his or her clients will face during retirement and then builds a plan to address those risks. So we at Money Matters make it our job to understand the financial risks faced by retirees.

One of those risks is frailty, the result of deteriorating mental or physical health. In this situation,

Risks Faced in Retirement #6: Elder Financial Abuse

It’s an unfortunate fact: People age 70 and older are prime targets for financial abuse and fraud. Victims come from every ethnic and socioeconomic group, but the ones most likely to fall prey to financial abuse are women, 70 to 89 years old. Many are never the same emotionally after being taken advantage of by someone they trust. And disturbingly, 55 percent of the perpetrators are family members, friends, neighbors, and caregivers. Sixty percent of family perpetrators are adult children.

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