Retirement planning is often framed around one central question: Do I have enough?

 

While that question matters, it may not be the only one that deserves attention. A successful retirement plan also needs to account for the risks that could disrupt income, increase expenses, reduce purchasing power, or force difficult financial decisions later in life.

 

For Southern California Edison employees, retirement may include a pension, Social Security, 401(k) savings, personal investments, and other financial resources. Those assets can provide a strong foundation, but they do not eliminate risk.

 

Some of the most important financial risks facing retirees today include inflation, market volatility, longevity, healthcare costs, taxes, withdrawal risk, and the possibility of needing long-term care.

The goal is not to eliminate every risk. That is rarely possible. Instead, thoughtful retirement planning can help identify the risks that matter most and determine how prepared your financial plan may be to manage them.

 

Inflation Risk

 

Inflation can quietly reduce the purchasing power of retirement income over time.

 

A retiree who needs $100,000 per year today may need considerably more in the future simply to maintain the same lifestyle. This can become especially important during a retirement that lasts 20 or 30 years.

 

For SCE employees receiving pension income, inflation deserves particular attention because certain retirement income sources may not increase at the same rate as everyday expenses.

 

Costs such as groceries, travel, insurance, utilities, property taxes, and healthcare may continue to rise even when some sources of retirement income remain relatively fixed.

 

This does not necessarily mean retirees should pursue higher investment risk in an effort to outpace inflation. Rather, inflation should be incorporated into long-term retirement projections so that future spending needs are not evaluated using today's dollars alone.

 

Key Question

Does your retirement plan account for the possibility that your cost of living may be significantly higher 10, 20, or 30 years from now?

 

Market and Sequence of Returns Risk

 

Most investors understand that markets fluctuate, but the timing of those fluctuations can become especially important after retirement.

 

A significant market decline early in retirement may have a larger impact than the same decline later, particularly when withdrawals are being taken from the portfolio at the same time.

 

This is commonly referred to as sequence of returns risk.

 

Consider two retirees with similar portfolios and long-term investment returns. If one experiences strong markets during the first several years of retirement while the other experiences a major decline, their long-term outcomes can look very different.

 

For SCE retirees, pension income and Social Security may help reduce dependence on investment withdrawals, but the remaining portfolio should still be structured around retirement income needs, time horizon, and risk tolerance.

 

Key Question

If markets declined significantly during your first few years of retirement, would your income strategy allow you to avoid making decisions under pressure?

 

Longevity Risk

 

One of the more difficult retirement risks is also a positive one: living longer than expected.

 

Retirement planning often requires making assumptions about how long assets may need to last. Retiring in your early or mid-60s could mean planning for three decades or more of retirement.

 

Living longer can increase exposure to nearly every other financial risk, including:

 

• Inflation
• Healthcare expenses
• Market volatility
• Long-term care
• Taxes
• Increased withdrawals from retirement accounts

 

Longevity planning is not about predicting an exact life expectancy. It is about making sure a retirement strategy is not dependent on everything going perfectly.

 

For married couples, planning should also consider the possibility that one spouse may live substantially longer than the other.

 

Key Question

Would your financial plan continue to support your lifestyle if you or your spouse lived well into your 90s?

 

Healthcare Risk

 

Healthcare often becomes a larger portion of household spending as people age.

 

Medicare can provide important coverage, but retirees may still face premiums, deductibles, prescription drug costs, dental and vision expenses, supplemental insurance, and other out-of-pocket healthcare costs.

 

Individuals retiring before Medicare eligibility may face an additional planning challenge because they need to determine how healthcare will be funded during the gap between retirement and Medicare.

 

Healthcare expenses also tend to evolve throughout retirement. The costs experienced during the first decade of retirement may be very different from those later in life.

 

Planning for healthcare separately from discretionary spending can help create a more realistic retirement budget.

 

Long-Term Care Risk

 

Long-term care can represent one of the largest potential expenses in retirement.

 

An extended need for home care, assisted living, memory care, or skilled nursing services may create financial pressure not only for the individual receiving care but also for a spouse or family members.

 

Some retirees choose to self-fund potential care expenses. Others consider traditional long-term care insurance or other insurance-based strategies.

 

There is no single approach that is appropriate for everyone.

 

The important question is whether the possibility of long-term care has been addressed within the financial plan.

Ignoring the risk does not eliminate it.

 

Key Question

If you or your spouse required several years of care, where would the money come from?

 

Tax Risk

 

Taxes can have a meaningful impact on retirement income.

 

For SCE retirees, taxable income may come from several different sources, including:

 

• Pension income
• Traditional 401(k) or IRA withdrawals
• Social Security
• Taxable investment accounts
• Real estate or other income

 

The challenge is that tax laws, income levels, and financial circumstances may change throughout retirement.

 

Required Minimum Distributions may eventually increase taxable income for individuals with substantial pre-tax retirement assets. Roth conversions, charitable strategies, withdrawal sequencing, and other planning approaches may sometimes help create greater tax flexibility, depending on individual circumstances.

 

Tax planning should generally focus on the long term rather than simply minimizing taxes in one particular year.

 

Key Question

Are you considering how taxes could affect your retirement income over several decades rather than just this year?

 

Withdrawal Rate Risk

 

How much a retiree withdraws from investment accounts can have a significant effect on how long those assets may last.

 

A withdrawal rate that works well during strong markets may become more difficult to sustain during periods of poor performance, high inflation, or unexpected expenses.

 

This is why retirement income planning should generally involve more than selecting a fixed percentage and assuming it will work indefinitely.

 

A more flexible approach may consider:

 

• Guaranteed or predictable income sources
• Portfolio withdrawals
• Cash reserves
• Market conditions
• Spending flexibility
• Tax consequences
• Expected future expenses

 

For SCE retirees with pension income, understanding how much of essential spending is already covered may help determine how much pressure is placed on investment assets.

 

Concentration Risk

 

Some employees enter retirement with a large portion of their net worth tied to a particular investment, employer-related asset, sector, or real estate holding.

 

Concentration can create significant wealth, but it can also increase risk if too much of the retirement plan depends on the performance of one asset.

 

Retirement may be an appropriate time to evaluate whether the investment strategy still reflects the individual's current stage of life.

 

The goal is not necessarily to eliminate concentrated holdings immediately. Tax consequences and personal circumstances matter. Instead, retirees should understand how a significant decline in any one asset could affect the broader retirement plan.

 

Key Question

Would a major decline in one investment materially change your ability to retire comfortably?

 

Behavioral Risk

 

Not every financial risk comes from markets, taxes, or healthcare.

 

Sometimes the greatest risk is how investors react to uncertainty.

 

During periods of market volatility, retirees may feel pressure to sell investments, move entirely to cash, chase recent performance, or abandon a long-term strategy.

 

Fear and overconfidence can both lead to decisions that may undermine an otherwise well-designed plan.

 

Having a retirement strategy that defines how income will be generated, how much liquidity should be maintained, and how investments will be managed during difficult markets can help reduce emotionally driven decision-making.

 

How Can SCE Employees Prepare for These Risks?

 

Retirement planning is not about trying to predict every future event.

 

Instead, it can be helpful to ask a series of "what if" questions:

 

• What if inflation remains elevated for several years?
• What if the market declines shortly after retirement?
• What if one spouse lives significantly longer than expected?
• What if healthcare expenses increase?
• What if long-term care is needed?
• What if tax rates or retirement income needs change?

 

A retirement plan that has been tested against multiple scenarios may provide a clearer understanding of where vulnerabilities exist and what adjustments could be considered.

 

Common Mistakes to Avoid

 

Focusing Only on Investment Returns

Investment performance matters, but retirement outcomes are also influenced by taxes, withdrawals, inflation, healthcare, longevity, and spending.

 

Assuming Expenses Will Stay the Same

Retirement spending rarely follows a perfectly predictable path. Travel, housing, healthcare, family support, and other expenses may change substantially over time.

 

Taking Too Much Investment Risk

A portfolio designed for accumulation may not necessarily be appropriate once regular withdrawals begin.

 

Taking Too Little Investment Risk

Moving entirely to conservative assets can create a different problem if long-term returns do not keep pace with inflation.

 

Ignoring Long-Term Care

A significant care event can affect both retirement assets and the financial security of a spouse.

 

Making Decisions Based on Short-Term Headlines

Retirement plans are generally designed for decades. Changing strategy repeatedly in response to short-term events may create additional risk.

 

Key Takeaways

The largest financial risks facing retirees often overlap. Inflation can increase spending. Market declines can make withdrawals more difficult. Longevity can extend the period over which assets must provide income. Healthcare and long-term care can create unexpected expenses, while taxes can reduce the amount of retirement income available for spending.

 

For Southern California Edison employees, pension benefits, Social Security, retirement savings, and other resources can provide an important foundation. The next step is understanding how those resources work together under different circumstances.

 

A strong retirement plan should not rely on one perfect forecast. It should be designed with enough flexibility to adjust as life, markets, taxes, and personal circumstances change.

 

Frequently Asked Questions

 

What is the biggest financial risk in retirement?

There is no single risk that is greatest for every retiree. Longevity, inflation, market volatility, healthcare, taxes, and withdrawal rates can all have a meaningful impact depending on individual circumstances.

 

How can retirees protect themselves from inflation?

Retirees may consider how their income sources, investments, and spending plans could respond to rising costs over time. The appropriate strategy depends on risk tolerance, financial resources, and retirement goals.

 

Why are market declines more dangerous after retirement?

When retirees are withdrawing money from a portfolio during a market decline, selling investments at lower values may affect the portfolio's ability to recover. This is known as sequence of returns risk.

 

Should SCE retirees keep money in cash?

Maintaining appropriate liquidity may help cover near-term expenses and reduce the need to sell investments during unfavorable markets. The appropriate amount depends on an individual's income needs and financial circumstances.

 

How important is long-term care planning?

Long-term care can represent a significant financial and family risk. Whether that risk should be self-funded, insured, or addressed through another strategy depends on each retiree's circumstances.

 

Final Thoughts

 

Retirement is not about eliminating uncertainty. It is about preparing for it.

 

For Southern California Edison employees, decades of work may have created valuable pension benefits, retirement savings, Social Security benefits, and other financial resources. Protecting those resources requires looking beyond investment performance and considering the broader risks that can influence retirement.

 

At Guardian Financial Partners, we believe retirement planning should help individuals understand not only whether they have accumulated enough, but also how their financial plan may respond when circumstances change.

By evaluating inflation, market volatility, longevity, healthcare, taxes, long-term care, and withdrawal needs together, retirees can make more informed decisions designed to help preserve their assets and protect their lifestyle.

 

 

About the Author

Casey S. Bartels, CFP® is a Founding Partner of Guardian Financial Partners. Since 2007, Casey and his partners have worked with Southern California Edison employees and executives, helping them navigate retirement planning, pension decisions, and other important financial considerations.

 

Educating Edison is our educational series designed to help Southern California Edison employees better navigate their financial lives.

 

 

Guardian Financial Partners is not affiliated with, endorsed by, or sponsored by Southern California Edison.