Plan for Tomorrow | Protecting retirement savings during an unstable market
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Protecting retirement savings during an unstable market

Nov 6, 2023, 9:16:20 PM | Reading Time: 6 minutes

Retirement can often come with uncertainty — will my savings last? How long will I live? Will I have unexpected health care expenses? Then you add in market volatility and inflation, and it’s hard not to worry about the retirement savings you worked so hard to build over the years. The good news is when you create a diversified financial plan, you can help protect a portion of your assets and keep your retirement goals on track even during market fluctuations.

Common concerns about market volatilityCommon concerns about market volatility

Market volatility is a normal part of the market cycle. Still, it’s understandable that a sudden drop can cause many people to feel concerned, especially if you are near or already retired. When the market experiences a 20% or more decline in stock prices over a sustained period of time, this is known as a bear market, and it can potentially reduce the size of a nest egg. However, with a strategic approach, one can minimize the risk to retirement savings and ensure the income needed to retire comfortably.

Here are some common questions and what to consider during market volatility.

SHould I retire when the stock market is down?Should I retire when the stock market is down?

You may be tempted to re-route your retirement when the stock market drops. However, consider working with your financial professional first to rebalance your portfolio if necessary or identify ways to protect your assets better. A market downturn doesn't need to derail your retirement entirely if you have successfully built enough savings for the future and matched your portfolio to your risk tolerance.

Why is my 401(k) losing money?Why is my 401(k) losing money?

When the market goes down, your 401(k) could potentially lose money based on the stocks and mutual funds in which your money is invested. If retirement is still down the road, your 401(k) has more time to recover. However, if you’re a soon-to-be retiree or have started retirement, market volatility can feel more concerning. Consider talking to your financial professional to understand better what you should and shouldn’t do when the market experiences a downturn.

Is my retirement safe?Is my retirement safe?

If a bear market hits just as you’re ready to head into retirement, you may worry that your plan will get knocked off track. One key to being more proactive than reactive during market downturns is already having a diversified retirement portfolio. This could help smooth out the highs and lows and help ensure a portion of your assets are protected. Other temporary options could also be considered. A diversified financial plan, which is a plan that usually contains a mix of asset and investment types, can help add more flexibility to your future.

The advantages of diversification

By having a variety of financial assets, such as an annuity or individual retirement account, that perform differently over time, you can help maximize returns while minimizing risk. The advantages of having a diversified financial portfolio include:

  •  Helps minimize the overall risk across your portfolio
  •  Allows you to take advantage of different growth opportunities
  •  It brings more stability and helps you balance risk and return
  •  It can decrease the time spent monitoring the market

Determining your risk toleranceDetermining your risk tolerance

How comfortable you are with risk can change throughout your life and as you near retirement. Determining your risk appetite can help structure your portfolio to match those preferences and create a financial strategy aligned with your goals. Some questions that can help you identify your risk tolerance:

  • What is your investment attitude? Conservative or more aggressive? 
  • How comfortable are you with short-term loss?
  • If the stock market drops, what are your expectations for your investments?
  • What do you expect from your investments during normal market conditions?
  • How often do you prefer to track your investments — daily, weekly, or monthly?

Since your risk tolerance can change as you age, completing a risk tolerance questionnaire can be helpful while reevaluating your portfolio to determine if changes need to be made.

Adding more security to your retirement portfolioAdding more security to your retirement portfolio

There are many retirement savings options you can choose from when you’re looking to balance your investments and bring more security to your overall portfolio. High-yield savings accounts, certificates of deposits, treasury bonds, and preferred stocks may all be options that can offer growth potential but are less affected by volatile markets. Fixed index annuities (FIA) are a type of financial product that can hold up in a bear market while protecting a portion of your retirement savings during a market downturn.

FIAs are in the lower range of the risk spectrum, and since interest credits are linked to market performance without being directly invested in the market, your FIA will not lose value if the market drops. Plus, if you’ve already entered retirement and receive income payments from your FIA, that money will not be adversely affected by market fluctuations. FIAs can also support your overall retirement accumulation strategy by helping build your retirement savings through conservative tax-deferred growth.

If you want to create a personalized financial strategy that can lessen the impact of market volatility and help you feel more confident about the future, talk to your financial professional about your retirement goals, risk tolerance, and overall concerns. Preparation is critical in helping reduce the stress that can come with market downturns and help ensure you have the retirement savings you need for a fulfilling next chapter.

This information is provided for general reference purposes and should not be viewed as investment advice or as a recommendation for a specific allocation. Neither North American Company for Life and Health Insurace, nor any agents acting on its behalf should be viewed as providing legal, tax or investment advice. Always consult with and rely on a qualified advisor.

Fixed index annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company. They provide the potential for interest to be credited based in part on the performance of specific indices, without the risk of loss of premium due to market downturns or fluctuation. Although fixed index annuities guarantee no loss of premium due to market downturns, deductions from the accumulation value for optional benefit riders or strategy fees or charges associated with allocations to enhanced crediting methods could exceed interest credited to the accumulation value, which would result in loss of premium. They may not be appropriate for all clients. Interest credits to a fixed index annuity will not mirror the actual performance of the relevant index.