What Risks Does a Retirement Plan Need to Survive?
A retirement income plan built only around a savings total has to survive three risks most projections skip: a market downturn hitting right as withdrawals begin, health care and long-term care costs arriving bigger than expected, and decades of inflation quietly eroding purchasing power. A real plan gets tested against all three.
- Sequence-of-returns risk: the order investment returns arrive in, not just their average, can determine how long a portfolio lasts.
- Healthcare and long-term care cost risk: medical and care costs in retirement are often larger, and less predictable, than a savings-balance plan assumes.
- Inflation risk: a 25 to 30 year retirement will likely include multiple years of inflation well above any long-run average.
Sequence-of-Returns Risk: The Timing Problem Most Plans Ignore
Sequence-of-returns risk is the danger that the order investment returns arrive in, not just their long-term average, determines how long retirement savings actually last. A portfolio that averages 7% a year over 25 years can still run out of money a decade early if the first two or three years happen to be down years, purely because of when the losses landed relative to withdrawals. This risk is sharpest in the five years before and after retirement, and it deserves its own detailed breakdown: read our full guide to sequence-of-returns risk and how a plan can be built around it.
How Much Does Health Care Really Cost in Retirement?
A 65-year-old retiring in 2025 should expect to spend an average of $172,500 on health care throughout retirement, according to Fidelity Investments' 2025 Retiree Health Care Cost Estimate. That number covers Medicare Part A and Part B premiums, deductibles, and coinsurance, plus Part D prescription drug costs. It does not include long-term care, over-the-counter medications, or most dental work. Fidelity's estimate has climbed most years since the firm started publishing it in 2002, when the figure was $80,000, a sign of how often this line item gets underestimated in a plan built around a savings balance alone. Health care costs also tend to rise faster than overall inflation, which is part of why a plan indexed only to a general inflation assumption often falls short specifically on this line item.
What Happens If You Need Long-Term Care?
Long-term care is a separate and larger risk, and Medicare generally does not cover it. The federal Administration for Community Living estimates that someone turning 65 today has almost a 70% chance of needing some form of long-term care in their remaining years. When care is needed, it is expensive: Genworth and CareScout's 2024 Cost of Care Survey put the national median cost of a private nursing home room at $127,750 a year, a semi-private room at $111,325 a year, and assisted living at $70,800 a year, each up 7% to 10% from the year before. A plan that has never modeled a multi-year care need is missing one of the three risks a real stress test has to cover.
Can a Retirement Plan Survive 20 to 30 Years of Inflation?
Inflation averaged about 2.6% a year from 1995 through 2024, based on Consumer Price Index data the Bureau of Labor Statistics publishes monthly. That average is low enough to feel safe to plan around, and that is exactly the problem: it hides the individual years that do the real damage. Inflation ran 4.7% in 2021, 8.0% in 2022, and 4.1% in 2023, three years in a row that would have cut into a retiree's fixed income far faster than any 30-year average suggests. Social Security benefits are indexed to inflation through the annual cost-of-living adjustment, but many pensions, annuity payouts, and bond coupons are fixed in dollar terms and lose real purchasing power every year prices rise. A retirement that runs 25 to 30 years, a realistic horizon for someone retiring at 65 today, will very likely include more than one stretch like that.
What a Real Retirement Income Stress Test Checks
These three risks share one thing: they rarely show up in a simple "will my savings last" calculation. A real retirement income stress test asks what happens if a downturn hits in the first five years of retirement, what happens if health care or a long-term care need costs more than the averages above, and what happens if inflation runs hot for several years in a row, not just what the averages predict. None of this replaces a personalized financial plan. PlanVault is not a financial advisor and does not provide financial, investment, or tax advice; what a licensed financial advisor can do is model your specific numbers against these three risks and show you where your plan holds and where it does not.
See If Your Plan Holds Up
A free PlanVault review connects you with a licensed financial advisor who can stress-test your specific plan against sequence-of-returns risk, healthcare and long-term care costs, and decades of inflation, at no cost to you. You can also check how long your current savings could last first, then bring the results to your review.