Longevity: The under-appreciated retirement risk

Navigating the Two Stages of Your Financial Life: Why One Risk Deserves More Attention

Financial planning is a lifelong journey, and for investors, this journey can be broken down into two distinct stages.
Each stage brings with it its own unique set of opportunities and challenges, and understanding the transition between them is essential for long-term financial wellbeing.

The first stage is what we call the “savings stage.” During this period, usually your working years, the focus is on accumulating wealth.
You diligently set aside income, investing it with the hope of compounding returns over time.
This stage relies heavily on discipline, habit-building, and the patience to let time do its work in growing your wealth.

Eventually, however, comes a significant turning point: retirement. At this point, investors enter the “spending stage.”
No longer are you adding to your portfolio, instead, you begin to withdraw from it to fund your lifestyle.
This transition from saving to spending can be a difficult adjustment, especially after years of building up frugality and restraint.
While those traits remain valuable, the rules of the game begin to shift dramatically.

In this second phase of life, we’ve identified two significant risks that retired investors face.
One of these risks is widely feared, perhaps too much so, while the other is chronically under-appreciated.
Understanding both can help retirees and those planning for retirement make more confident, informed decisions.

Let’s unpack these two risks.

The Risk That Gets Too Much Attention: Volatility

Volatility refers to the natural fluctuations in investment values over time.
For retirees, the concern is that they’ll be forced to sell their investments during a downturn, potentially locking in losses at a time when they need to generate income. This is a valid concern. No one wants to sell assets at a discount, especially when those assets are meant to sustain their lifestyle for decades.

However, this is not an unmanageable risk.
In fact, many retirees successfully mitigate this challenge by maintaining a buffer, keeping a portion of their portfolio in cash or low-volatility assets that can be drawn upon during market downturns. This allows them to avoid selling growth assets at inopportune moments and gives their portfolio time to recover.

The reality is, markets go through cycles.
Declines are inevitable, and they often arrive without warning.
But just as reliably, markets have historically recovered and grown over the long term.
With the right planning and strategy in place, retirees can weather these storms without making irreversible decisions.

The Risk That’s Often Ignored: Longevity

While market volatility tends to dominate headlines and dinner table conversations, a more pressing issue for many retirees is longevity.
Put simply: people are living longer.
Thanks to medical advancements, better diets, and healthier lifestyles, it’s no longer unusual for a couple to spend three decades in retirement.
In fact, there’s a one-in-three chance that at least one member of a couple will live to age 95.

This extended retirement horizon introduces a host of financial pressures, ongoing living expenses, rising healthcare costs, and the inevitability of unexpected financial needs. Unfortunately, many retirees fail to grasp just how much of a challenge this will be.
They assume they’ll need income for 15 or 20 years, when the reality could be much longer.

To meet this challenge, retirees must often do what feels counterintuitive: embrace some level of market risk.
Avoiding volatility entirely in favour of low-return assets might feel safe, but it can actually increase the risk of running out of money too soon.
The goal should be to generate a rising income that keeps pace with inflation over a retirement that may last 30 years or more.

Shifting Your Mindset and Strategy

As longevity continues to rise, the approach to retirement planning must evolve.
Many of the rules of thumb that applied to past generations are becoming outdated.
Today’s retirees, and those still in the savings stage, must think more expansively about what financial independence truly means and how to achieve it over a longer lifespan.

For those still building their wealth, this shift means reassessing how much is “enough.”
Retirement isn't just a distant milestone, it’s a phase of life that could last as long as your working years.
That has serious implications for how you save, invest, and plan.

This changing landscape is why we emphasise the importance of a comprehensive and adaptable financial plan, one built on evidence, regular review, and thoughtful foresight.
Financial planning isn’t just about managing money; it’s about preparing for a future that keeps changing.

Whether you’re nearing retirement or decades away, now is the time to consider how these realities impact your financial future.

Our role is to help guide you through these decisions, ensuring your money works as hard for you in retirement as you worked to earn it.

Let’s plan for a future that’s longer, and more rewarding, than you may have imagined.

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