When it comes to retirement, timing is everything. The markets, inflation, interest rates, and even government policy all have their own rhythm, and they don’t always play in tune with your life.
This uncertainty is what financial planners call timing risk, and it can quietly make or break your retirement plan.
Understanding Timing Risk
Timing risk (sometimes called point-in-time risk) is the danger of retiring, or drawing income, at the “wrong” moment. Some of it is pure luck. Retire during a market downturn or a high-inflation period, and your savings may need to work a lot harder to last as long as you do.
Example:
- Patty retired in 1974. For every $1,000 she needed then, she required $3,379 twenty-five years later.
- Mary Lou retired in 1986. For every $1,000 she needed then, she required $2,064 twenty-five years later.
- That’s a 337% vs. 206% increase in costs — all because of when they retired.
It’s the same story with interest rates and tax laws. If you retire into a period of low interest rates or rising taxes, your money simply doesn’t stretch as far.
Adding Another Layer: Public Policy Risk
Then there’s public policy risk - the financial curveballs that come from Washington or your state capital. It’s the risk that a change in government policy or tax law affects your income, benefits, or lifestyle in retirement.
Some examples:
- Means testing for Social Security or Medicare could reduce benefits for higher-income retirees.
- Higher taxes: federal, state, or even property taxes can cut into your spending power.
- Medicare premium surcharges (IRMAA) can increase based on your income two years prior.
- Medicaid eligibility changes could affect long-term care options.
These shifts often come with little warning and can reshape your retirement landscape overnight.
What Makes These Risks So Challenging?
Timing and policy risks are unpredictable, but their effects are long-lasting. The key challenge is that you can’t plan for exact events but you can plan for their impact.
Here’s how:
- Diversify across more than just investments.
Include multiple types of accounts (tax-deferred, Roth, taxable), income sources, and even product types like annuities or insurance. - Stay flexible.
Build in liquidity...Cash reserves and contingency funds, so you can adapt quickly if conditions change. - Plan proactively for tax shifts.
Consider Roth conversions or municipal bonds to hedge against potential tax rate increases. - Work with an advisor who tracks policy changes.
Staying informed and nimble can make all the difference.
“You can’t predict when inflation will spike or tax rules will change. But you can design your plan to handle surprises gracefully.”
The Value of Proactive Planning
It’s easy to think that timing risk is just “bad luck.” But it’s more about resilience - building a retirement plan that can bend without breaking.
Working with a financial advisor can help you:
- Adjust your withdrawal strategy to weather market cycles
- Monitor policy changes and react before they impact you
- Revisit your plan regularly to reflect new realities
You can’t control the timing, but with the right plan, you can control the outcome.