Three risks you may encounter if you're unprepared for retirement.

Those who feel underprepared for retirement will need to be extra strategic when navigating their retirement income plan. Obviously, the primary goal is to have enough income in retirement so as not to outlive your means, however one should also anticipate and account for potential risks when developing or tweaking their plan.  

Some do achieve the goal of “having enough”, however most people worry about running out of money in retirement. In fact, in a study conducted by Allianz Life last year, over 60% of Americans said they were more afraid of outliving their nest eggs than of dying.  

So, what can be done to reduce some of these feelings of unrest? We are about to cover three areas of risk to your retirement nest egg, as well as potential strategies one can use to combat these areas of risk.

Risk #1: Withdrawing from an underperforming account

One of the largest risks to a retirement portfolio occurs when one takes withdrawals from an underperforming account. This quite frankly solidifies the underperformance as it makes it more difficult to recoup from any market losses.

Before making any decisions to withdraw when things are looking grim, it is best to consult a financial professional who can help you consider your options. He/she will likely advise you to diversify your portfolio so that you don’t have “all your eggs in one [underperforming] basket” and may even be able to recommend better long-term options.

One such option could be moving your funds into a safer environment, such as a Fixed Index Annuity (FIA), where the funds can grow while being safe from market volatility. FIA’s also offer a guaranteed source of income in retirement, which goes back to our primary goal mentioned above: making sure you don’t outlive your money.

Risk #2: Longevity

Most of us envision an early retirement and a long life, right? I mean, that’s what we are all ultimately aiming for! While spending many years in retirement and living well into your 80’s, 90’s, or even 100’s is clearly a great thing, it can also be considered a risk as you would be drawing from your assets for a longer period of time. Over a longer period of time, there is more opportunity for unforeseen circumstances or events, such as potential market fluctuations.

This again affirms our earlier recommendation to involve a financial professional in your retirement planning process and possibly even considering more safety in your portfolio. Someone who feels underprepared for retirement may want to decrease the level of risk even further so as to not lose any more of their nest egg, especially in the last few years before they actually might need to start using it.

Risk #3: Balancing risk and reward

The “Rule of 100” (ie. taking 100- your age, to determine acceptable risk) offers a helpful guideline when deciding how much risk to maintain in your portfolio, however we know that the decision can be much more complicated in reality. We also understand that, regardless of where you are in your retirement journey, you would still like to maintain some level of growth for your assets as much as is reasonable. Can you have your cake and eat it too?

We believe you can. But again, it is about picking the right strategy for your situation and personal goals and a financial professional can help you with that. Overall, FIA’s can be good options for some, because they can offer a reasonable rate of return over time while backing your premiums and interest so that you never lose money.  The same Allianz Life study mentioned above found that over 50% of Americans are leery of investing any more money in the stock market any time soon. There is just too much uncertainty in today’s market for a more mature investor and some are thirsting for other areas to put their money. Many FIA’s can offer some of the upswing of the market without the downside.



Don't be consumed by risk

While we certainly want you to be aware of the potential risks you may encounter in retirement, we are not trying to be all doom and gloom.  Don’t stress! Just work with someone to help you plan accordingly. With the right strategy that incorporates a steady retirement income AND potential risk mitigation, you will be well on your way to a sandy beach somewhere, with a pina colada in your hand!

We at Summerlin Benefits Consulting specialize in Retirement Income Protection and reassure our clients day in and day out so that they feel confident in their retirement planning journey. You don’t have to feel underprepared any longer- give us a call today.