Retirees risk exposing their savings to sequence of returns risk when they withdraw from their retirement accounts during a bear market. This can shorten the lifespan of their savings or negatively impact returns for the rest of retirement. Market downturns don’t have the same effect during the accumulation period as they do during the income phase of retirement. The state of the market at the time you retire could have a lifelong impact on your savings: Negative returns early on in retirement can cause a retiree to liquidate more investments to provide income, which makes running out of money more likely. No one can predict the state of the market at the time of their retirement, but they can plan to help protect their savings from downturns.

Interest rates are relatively low right now, which can make generating retirement income difficult. Today, retirees cannot rely on interest rates to generate income like they could from 1975 to 1993 when a U.S. Treasury note was over 7%. During those times, a CD would have been a better retirement investment than it is now, when retirees could need to withdraw more from their savings to have enough income.

Investors can be swayed by their emotions, and this doesn’t always make for the best outcomes. Fear, excitement, panic, and euphoria can all disrupt a long-term investment strategy. The evidence shows that investors often get in and out of the market at the wrong times, since net inflows to equity funds tend to rise with stock prices and net outflows tend to happen when stock prices fall. From 1996 to 2015, the average investor earned 2.11%, while the S&P 500 Index gained an average of 8.19%. This implies that staying invested through downturns may be better in the long-term.

Inflation eats away at purchasing power, causing savings to be worth less in the future. The Consumer Price Index (CPI) measures inflation based on prices consumers paid for a representative basket of goods and services. The price of these goods and services has increased 2.8% annually since 1981. Inflation is also measures by the Consumer Price Index for the Elderly (CPI-E), and this has shown that prices have increased by 3.1% since 1981. This is largely due to rising healthcare costs, which have increased 5% every year since 1981. Inflation can have a damaging affect later in retirement.

Retirees need to figure out how much they can safely withdraw from their accounts each year. A sustainable withdrawal rate is defined as how much can be withdrawn from a portfolio with low probability of depleting the account. This rate depends on the client’s age, length of time in retirement, asset allocation, market performance, and interest rate. The “4% rule” used to be widely accepted as a safe approach, but now that people are living longer and interest rates are lower, a 2.8% to 2.4% rules may be more appealing.

Many Americans have saved diligently for retirement, but do not have a plan for creating retirement income they can count on for the rest of their lives. Transitioning from saving to spending down is difficult and requires careful planning to avoid these common risks.