Fidelity Investments estimated in July 2026 that the average 65-year-old could need hundreds of thousands of dollars for medical expenses in retirement. This figure highlights one of three major threats to retirement security, according to Drake & Associates, an investment advisory firm.
The first threat is declining buying power. Inflation reduces what your money can buy each year. Social Security's Cost of Living Adjustment rarely keeps pace with actual cost increases, especially once Medicare premium hikes are factored in. Stashing cash in savings accounts leaves you vulnerable if interest earned falls below inflation rates.
The second threat is tax planning. Different retirement accounts face different tax treatment. Withdrawals from a traditional IRA are taxed as ordinary income, while qualified Roth IRA withdrawals are tax-free. Traditional IRA contributions are pretax, but Roth contributions are taxed upfront. The IRS requires withdrawals from IRAs starting at age 73 (or 75 for those born in 1960 or later), regardless of need. These required minimum distributions are taxed and counted as income, which can push you into a higher tax bracket when combined with Social Security or pension payments.
The third threat is sequence-of-returns risk. Withdrawing from assets during a market downturn locks in losses. The 2008 financial crisis illustrated this: retirees forced to sell depreciated stocks to pay bills had less capital left to recover when markets rebounded in 2013. Some returned to work as a result.
Drake & Associates suggests diversifying across asset classes with different risk levels so you can withdraw from lower-risk investments when higher-risk ones decline, allowing them time to recover.