Retirement concerns

There’s lots of advice out there about how to save for retirement. But actually drawing down your savings as retirement income is a different matter. There are a number of risks that can put a dent in your retirement portfolio. Here are some potential risks to watch out for and how to develop a good defense.


Jump to learn about these retirement income risks:

Stock market volatility | Low interest rates | Inflation

Or jump to learn about these types of retirement income taxes:

Federal | State | Pension benefits and annuities
Social Security | Interest, dividends and gains


Retirement income risks

Consider these three retirement income risks before withdrawing your savings as retirement income.

Stock market volatility

Though the stock market historically offers good returns over the long haul, as you near retirement, you may be more vulnerable to market downturns. While it may be tempting to turn completely away from equities to preserve assets, keep in mind retirement can last for decades and you may still need to capture growth. To help protect against volatility, you may want to consider a lower risk portfolio that offers diversification that will still allow for growth.

Low interest rates

As you near retirement, the traditional approach has been to have more bonds in your portfolio. In today’s low rate environment, they might not generate sufficient income on their own. That’s why you might consider working in equities and real assets, like commodities or real estate, into your retirement portfolio, which can help generate additional income.


The cost of retirement is likely to increase over time, which means that your lump sum savings might not stretch as far as you thought. To protect against inflation, you might consider investing a portion of your savings in equities and real assets, which are designed to help hedge against this risk. Or, if purchasing an annuity, you might opt for one that offers cost-of-living adjusted payments.


Retirement income and taxes

Market risks aside, taxes can also eat up a chunk of your retirement income. That’s why it’s important to consider tax-saving strategies, like relocating to a state with no, or low, income tax or converting savings to plans that offer tax-free withdrawals. When developing a strategy that makes sense for you, here are key retirement taxes to consider ahead of time.

Federal taxes on retirement account withdrawals

If you have a traditional 401(k) or traditional individual retirement account (IRA), the IRS generally requires that you begin to take annual required minimum distributions (RMDs) when you turn 70 ½ years old. Withdrawals are taxed as ordinary income and, the larger your savings in the account, the larger the withdrawal requirements, which could push you into a higher tax bracket than you expected.

State income taxes on retirement account withdrawals

Only a handful of states have no state income tax. So unless you live in one of these states, you'll owe state taxes on at least a portion of your income, though some states exempt Social Security benefits and pension payouts. To find out what state taxes you might owe on your retirement income, explore this retirement tool.

Taxation of pension benefits and retirement annuities

Depending on how your employer funded your pension, you may owe taxes on your payouts. Benefits you receive from an annuity may also be taxable.

Social Security benefit taxes

While some states don’t charge income tax on Social Security income, Social Security payments are subject to federal taxes. Here’s how it works: The Social Security Administration determines how much income you make by looking at the sum of your adjusted gross income, plus tax-free interest income and half of your annual Social Security benefits. If that number adds up to more than $34,000 for you, or $44,000 if you file a joint tax return with your spouse, you could owe federal income tax on up to 85% of your Social Security benefits.

Interest, dividends and gains from taxable accounts

Payouts from regular accounts, such as dividends or proceeds from the sale of an investment (capital gains), generally are subject to federal tax, and potentially state tax, depending on where you live.