4 Most Common Financial Challenges in Retirement

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May 24, 2023 – By Heather Taylor

Many people dream about retirement, that next chapter of life where you can explore your dreams and enjoy a comfortable lifestyle. Living in retirement, however, often looks quite different on a day-to-day basis, as retirees are not immune to facing financial challenges.

While some of these challenges might be familiar, like living in an inflationary period, others are completely new. Let’s look at some of the most common financial challenges and how retirees can prepare for the expected and unexpected alike. 

Loss of Identity

Retirees who have spent a significant amount of their lives working, and enjoying the work they do, might be afraid to lose the identity that took them a lifetime to create. This fear is often coupled with the challenge of living on a fixed income, a transition that is often a far cry from the salary raises and bonuses they were previously accustomed to throughout their careers.

Kurt Heineman, financial planner at Vision Casting Financial Planning, said while many financial planners recommend living on 80% of your previous salary in retirement, it can still be a challenge for retirees to get used to a reduction in expenses. Living on a fixed income is made all the more difficult for retirees mourning the loss of their careers, pay and achievements over the last 40 years.

While it often sounds nice to stop working, Heineman said many people experience a sense of loss and grief when they retire.

In order to make the transition less challenging, Heineman recommends considering your reason for retiring and your purpose in retirement. Ask yourself the following questions.

  • How will you spend your time?
  • Who will you spend it with?
  • Will you travel?
  • Are their charitable organizations that you can share your gifts and skills with?

“Answering these questions can help you have a sense of purpose and helps you with knowing how to prioritize your budget and not overspend in the first few years of retirement,” said Heineman.

Long-Term Healthcare Costs

Often, many people will retire before age 65. Those who make this choice are not yet eligible for Medicare and are faced with the challenge of paying for health insurance premiums. Even when eligible for Medicare, retired individuals may find not all health issues or prescription costs are completely covered by insurance. This results in the challenge of retirees either self-funding these costs or finding supplemental insurance programs that may fit their needs.

While it’s important to consider healthcare costs well in advance before retiring, Mindee Kissinger, investment advisor representative at OneDigital, said those already in retirement may partner with a financial planner to ask questions and receive careful consideration and education about healthcare topics.

Working alongside a financial planner may allow you to determine which options are the best fit for you to close the gap between your retirement date and Medicare eligibility, like COBRA or a spouse’s healthcare plan if they are still working. Those who reach Medicare eligibility may discuss with a financial planner what they need to know about Part A for hospital costs (after deductible), Part B for additional medical costs with an annual premium and Part C for prescription coverage.

“Unfortunately, I have seen many times where people in retirement aren’t prepared for how high these costs can be,” said Kissinger. “I suggest seeking out quotes for long-term care insurance as soon as possible, as they generally get more expensive the longer you wait. Be sure to get multiple quotes for amounts the policies would pay for monthly care, what facility coverage is provided, as well as understanding the caps on how long the policy would pay those benefits. Most financial planners should have a good understanding of walking you through these options, and/or they will partner with an insurance specialist to assist.”


While some people enter into retirement without debt, this is not true of all retirees. People who enter into retirement with debt may struggle to pay it off and find it puts a strain on their golden years.

Katie Ross, executive vice president for American Consumer Credit Counseling (ACCC), recommends retirees struggling with debt consider free credit counseling.

“A credit counselor can help people strategize a way to save money or reduce expenses to try to free up money for paying debt,” said Ross. “They can also refer retirees to other government resources for further assistance.”

Sequence Risk

Sequence risk, also known as sequence of returns risk, is the risk that comes from the order in which your investment returns occur.

“This risk largely matters for those entering, or already in, retirement,” said Kissinger. “Large drawdowns in returns at the same time withdrawals are being made can potentially reduce the longevity of your investment portfolio, sustaining future income.”

Sustaining income is one of the most discussed concerns among retirees. In a period of increased market volatility, which has been seen throughout 2022, people have heightened concerns about their future income.

Retirees working with financial planners to address their healthcare concerns would be wise to work alongside professionals that understand portfolio construction and financial market trends. Kissinger recommends having a clear withdrawal goal set and managing your investments in an asset allocation set specific to that goal.

“If a market drawdown were to occur, the risk budget of that allocation should not exceed your maximum loss,” said Kissinger. “Other strategies that help mitigate sequence risk include bucketing cash for one to two years of income, equity loans, reverse mortgages or laddering bond portfolios.”

As a side note, remember that these options come with various risks and expenses. Each should be carefully considered with the assistance of a financial advisor, tax professional and estate attorney.