We all face risks in our daily lives. These include small but irritating risks like losing a cell phone or a minor car accident. Then there are the big risks like poor health and death too soon. Classic financial planning axioms say there are five ways to deal with a known risk:
- Shift the risk to someone else,
- Bear the risk ourselves,
- Or a combination.
For small losses like losing a cell phone, we generally try to prevent the risk by taking care of our cell phone and then accept the financial risk of losing our phone. For risks that have a larger financial impact, we usually buy insurance and accept a smaller portion of the risk by having a deductible. For example, when you own a car, you buy insurance to shift the risk of a major loss to the insurance company and we pay a deductible.
With this in mind, what are the risks in your retirement? There are many both financial and non-financial. One study listed 17 financial risks alone. Rather than feel overwhelmed or discouraged by trying to anticipate every possible risk in retirement, let me suggest a manageable approach to your retirement risks.
- Define what you mean by a successful retirement. Be as specific as you can.
- Now list the things that could happen that would derail this success. For example, on everyone’s list of retirement risks is poor health. Another risk that appears in most retirees risk factors is running out of money.
- For each risk that you list in step #2, start to brainstorm ways you can manage this risk. For ideas, look at the five ways to manage risk above.
Write these ideas down and add to them or change them as you think about the question of your retirement risks. With a written plan that identifies what you want retirement to be for you, the factors that could get in the way of that plan AND a list of what you can do to avoid or reduce those risks, you have a much greater probability of enjoying a comfortable retirement.