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Is your retirement savings safe?

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Refuge Financial Solutions

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Jul 22, 2025

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Colorado - Southern Colorado

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Financial retirement strategy can be difficult. Saving for retirement (accumulation) is only half the battle — the real challenge begins when it's time to turn that savings into income that lasts (distribution). I’ve found that many of those that do well during the accumulation phase have little idea what to do during the distribution phase. In Tom Hegna’s great book, Pay Checks and Play Checks, he addresses this by looking at risks that every senior must think about and mitigate during the distribution phase of their financial retirement strategy. Have you thought through these risks and planned accordingly?

Inflation risk

You may be in danger if this characterizes you: “I’m so scared of the stock market and losing money that I’d rather just keep all my money somewhere safe like a savings account.”

Inflation is a virtually guaranteed to eat away at the purchasing power of your retirement savings. That means that whatever money you currently have saved for retirement won’t be able to buy nearly as much in 10 or 20 years as it can now. Inflation has surged in recent years, with some years nearing 6–7%, reminding us how quickly prices can rise and purchasing power can shrink. Let’s look at some numbers and imagine you have $100,000 in a savings account that offers virtually no growth. If we estimate an annual inflation average of 3% for the next 20 years, your same $100,000 would have the equivalent purchasing power of $55,368 in today’s dollars. In other words, letting $100,000 sit without growing for 20 years is like giving up nearly half your purchasing power — thanks to inflation quietly eating away at it year after year.

Application: You should consider investing your retirement savings in something that will at least outpace inflation (something that will earn 3-4% or more).

Longevity risk

You may be in danger if this characterizes you: “I have some money in my retirement savings, but I haven’t really thought through a plan for withdrawing it. I figure I’ll just withdraw money as needed and I should be ok.”

As people live longer, our retirement savings must last longer as well. With average life expectancy in the U.S. near 80 and normal retirement at age 65, some plan for their savings to last 15 years. However, since 80 is the average life expectancy, many will live beyond that. Statistics also say that if you’re married, you have a better chance to live longer. If you have a husband and wife who are 65, there is a 50% chance that one of them will live to age 92. To be safe, it would be wise to at least plan for your retirement savings to last 25-30 years. To help accomplish that, many financial advisors suggest following the 4% rule. (Some adjust it to the 3% rule to be extra cautious). That is, that you should only withdraw 4% of your retirement savings in the first year of retirement and then adjust annually for inflation. That may seem extremely cautious, but the last thing you want to do is run out of your retirement savings at age 91. What options would you have then? Longevity is also a risk multiplier because the older you live, the greater the chances that you will face large health and financial risks that could devastate your retirement savings.

Application: It may be wise to consider utilizing a vehicle like an income-focused annuity that is designed to stretch your retirement savings and provide lifetime income that will last as long as you do.

Volatility risk

You may be in danger if this characterizes you: “I know that I must risk my retirement savings if I want to see it grow. Therefore, I keep all my retirement savings in market-based products like mutual funds, stock, bonds, etc.”

Relying completely on the long-term upward trend of the market makes sense for the 30-year-old still in the early years of the accumulation phase of financial retirement strategy. However, for the 65-year-old transitioning into the distribution phase of financial retirement strategy, more caution is advised. At that point, you have much less time to make up for large losses that come with market volatility. If you are wealthy, with hundreds of thousands of dollars in safe investments--by all means, risk larger portions of your retirement savings in market-based products with the hope of earning more. However, if you only have a few hundred thousand dollars (or less) in your retirement savings, you need to seriously consider volatility risk. And be careful when people speak of “diversification” being the magic bullet with your market-based retirement savings. Yes, diversification is good. But if all your “diversification” is in market-based vehicles and the entire market takes a dive, what happens then? Was that really true diversification? A simple rule of thumb you can use is the “rule of 100.” (Some call it an oversimplification, but it can be a good quick reference and starting point). Subtract your age from 100 to determine the percentage of your retirement savings allocated to volatile investments, with the remainder going into safe investment vehicles. For example, a 70-year-old would allocate 30% of her savings into risky, market-based investments while allocating the other 70% into safe retirement vehicles. What does your retirement savings allocation look like when using the rule of 100?

Application: It’s wise to consider protecting more of your retirement savings as you get older. The more money you have, the more money you can risk in volatile investments. However, if you only have a few hundred thousand dollars (or less) in your retirement savings, you may want to consider being more conservative when it comes to volatility risk.

Order of return risk

You may be in danger if this characterizes you: “I’m ok having a large amount of my retirement savings at risk to market fluctuations when I’m near retirement age. I can always reallocate to safer options later.”

During the accumulation phase of financial retirement strategy, the focus is on average return from your investment over a period of years. However, once you begin the distribution phase, the rules change. Studies show that experiencing a large loss from a market downturn in the years immediately before and after retirement have a much larger negative impact on how long your savings last than experiencing a similar loss at the end of your retirement years. To illustrate this, let’s look at an example. Imagine Person A and Person B both retire and begin taking distributions at age 65, live to age 90 and see their retirement savings grow at the exact same rate of return over those 25 years. However, Person A experiences a large loss from market downturns at the beginning of retirement while Person B experiences a large loss from market downturns at the end of retirement. The studies show that Person A is in much bigger trouble than his counterpart and will likely see his retirement savings depleted years earlier. When will the next market crash happen? No one knows but it’s a risk that should be seriously considered.

Application: What some refer to as the golden window or Retirement Red Zone is around 5 years before retirement and 5 years after retirement. Experiencing a large loss from a market downturn in those years could be devastating to your financial retirement strategy. Therefore, it’s wise to consider protecting a large portion of your retirement savings during those critical years.

Retirement should mean freedom to do the things you want to do. When it comes to financial retirement strategy, these are just a few of the main risks that everyone must navigate in order to most experience that freedom. You worked hard to save and accumulate your retirement savings. Once retired, you must work hard to educate yourself and make wise decisions so that your retirement years can be as relaxing and enjoyable as possible. Find someone you trust, that you can talk with about your specific situation and mitigating these risks. Make sure they’re looking out for your needs and not just their own. I wish you the best and here’s to a great retirement!

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