5. Estate Planning
4. Long-Term Inflation Risk
3. Sequence of Return Risk
2. Lack of Tax Diversification
1. Leaving Too Much Money on the Table While You're Alive
Final Thoughts
Top 5 Portfolio Risks to Know Before You Retire
Retirement is supposed to be the reward — the payoff for decades of disciplined saving, smart decisions, and delayed gratification. But getting to retirement with a healthy portfolio is only half the battle. The risks that matter most often aren't the ones people expect.
In this post, we break down the five most important portfolio risks to understand before you retire, based on what Jamie and Michael see working with clients every day at Heirloom Wealth Management.
Most people assume that having an updated will means their estate is in order. But one of the most common — and costly — mistakes we see is outdated beneficiary designations.
Here's the critical detail many people miss: beneficiary designations on IRAs, 401(k)s, and life insurance policies will supersede your will entirely. An ex-spouse listed as a beneficiary on a retirement account will inherit that account regardless of what your will says.
As you enter retirement and your asset base grows, this becomes increasingly important. Beyond beneficiaries, a complete estate plan should include:
A current will
Durable power of attorney
Advanced medical directives
Careful titling of assets — adding a child to a brokerage account or home may eliminate their ability to receive a step-up in cost basis at your death, creating an unnecessary tax burden
Working with a knowledgeable estate planning attorney is worth the investment. The cost of not doing it can be far greater.
Inflation became impossible to ignore following the pandemic, but the long-term risk of inflation in retirement is something financial planners have always taken seriously.
If you retire at 60 and are married, there's a 50% chance one of you will live past 90. That's a 30-year time horizon — and inflation compounds silently over every one of those years. At just 3% average inflation, purchasing power is cut nearly in half over 25 years.
The instinct for many retirees is to shift entirely into conservative, fixed-income investments. But doing so can expose you to a different kind of risk: the slow erosion of what your money can actually buy.
A well-structured retirement portfolio maintains enough growth-oriented assets to outpace inflation over time — while still managing short-term volatility. This balance is at the heart of good retirement income planning.
This is one that financial planners think about constantly — and one that most pre-retirees have never heard of.
Sequence of return risk refers to the danger that a market downturn early in retirement — while you're actively drawing down your portfolio — can permanently impair your financial security, even if long-term average returns are identical to someone who retires at a different time.
Consider two people who retire with the same portfolio, the same average annual return over 30 years, and the same withdrawal rate. The only difference: one experiences a major market downturn in years one through three of retirement, and the other experiences it in years 20 through 22. The first person may run out of money. The second may barely feel it.
This is why the order of returns matters — not just the average.
Strategies to manage this risk include:
Maintaining a separate conservative "income account" with two or more years of living expenses, so you're never forced to sell equities at depressed prices
Coordinating Social Security timing with your withdrawal rate to reduce early pressure on the portfolio
Working with an advisor to stress-test your plan across a wide range of market scenarios — not just historical averages
At Heirloom, we often set up two separate IRA accounts for clients in retirement — one conservative for near-term income needs, and one growth-oriented for the long runway. It creates both practical protection and peace of mind.
You've diligently saved your whole career into your 401(k). You've done everything "right." But if the majority of your retirement assets are in pre-tax accounts, you may have a tax problem waiting for you.
Tax diversification refers to the location of your assets across three distinct tax buckets:
Tax-Deferred (Traditional IRA, 401k): Contributions were made pre-tax, so all withdrawals are taxed as ordinary income
Tax-Free (Roth IRA, Roth 401k): Contributions were made after-tax, so qualified withdrawals are completely tax-free
Taxable Accounts (Brokerage): Subject to capital gains taxes and annual tax on dividends and interest
The problem with holding everything in pre-tax accounts is what happens at age 73, when Required Minimum Distributions (RMDs) kick in. We recently worked with a client who had accumulated $2.5–3 million in a Traditional IRA. When we projected their RMDs combined with Social Security income, their annual income was north of $300,000 — pushing them into a tax bracket they never anticipated.
The good news: if you have a runway before retirement, there are strategies to improve your tax position. Roth conversions during low-income years — particularly the window between retiring and starting Social Security — can shift assets to tax-free status at a lower tax rate. If you're still working, many employers now offer Roth 401(k) options, which allow you to build the tax-free bucket from the start.
The goal is to have flexibility — so that in any given year, you can draw from whichever bucket creates the best tax outcome.
This one surprises people. But in our experience, it may be the most common retirement risk of all.
Many people who have spent a lifetime building wealth arrive at retirement deeply conditioned to save and protect — and find it genuinely difficult to shift into spending mode. The fear of running out of money can lead to chronic underspending: skipping experiences, holding back on generosity to family, and delaying the things they always said they'd do "someday."
The result? Clients who reach their late 70s and 80s physically unable to do the travel or activities they put off in their 60s. That's a real loss.
Research on retirement spending shows what's often called a "smile curve": spending tends to be highest in the early, active years of retirement (the "go-go" years), slows in the middle years, and decreases significantly in later years. Waiting to spend often means missing the window when you're most able to enjoy it.
At Heirloom, we stress-test our clients' financial plans across over a thousand different scenarios — different market conditions, inflation rates, and sequence of returns — to find the range between "running out of money" and "leaving too much living on the table." Our goal is to help clients live confidently in that range, with the peace of mind that the math supports their choices.
We often say: we don't want our clients to be the richest person in the graveyard. Your money is a tool. Use it for what matters.
These five risks — estate planning gaps, inflation, sequence of returns, tax concentration, and underspending — don't have to derail your retirement. But they do need to be planned for.
The investors who navigate retirement successfully aren't the ones who got lucky. They're the ones who worked with a trusted advisor to build a plan, stress-tested it, and had the confidence to actually live by it.
If any of these resonated with you, it may be time to take a closer look at your retirement strategy.
Watch the full video:Top 5 Portfolio Risks to Know Before You Retire
Related Services
