With the current market fluctuations mostly due to the pandemic, many people are concerned about their retirement options. In most cases, when there is a recession or when we speculate high chances of a recession, the most natural thing that most people do is to evaluate their retirement savings plan. Statistics show that the majority of Americans say that it is crucial protecting their retirement savings. At least, 72% of Americans agree that it is a good thing to protect their retirement and they would do it by any means necessary, according to a 2019 Allianz Life Survey.
Yet, experts caution people from taking dramatic actions in the name of safeguarding their retirement. According to an article published by the cnbc.com, Steve Parrish, co-director of the New York Life Center for Retirement Income at the American College of Financial Services argues that it is not advisable to sell in a low market and cautions people against making a big decision without fully conceptualizing them. So, how do you guard your retirement the right way, without ever exposing yourself to market risks? In this blog, we are going to share 5 key steps that you can take to guard your retirement.
Evaluate the income you’ll need during your retirement years
Plan ahead and estimate the income that you need for your retirement. Estimating the amount of savings that you will put aside each year for your retirement will help you figure out how big or how small your retirement investment will be. Today, if you plan to retire by the age of 65 years, you need to have at least a financial plan for 20 years. Because you need your retirement savings to take you through the last decades, it is also good to look at your estimated withdrawals from the 401(k) and IRA as your new paychecks. This income, coupled with the Social Security Benefits or other benefits accruing from your retirement will be used to cater for your daily expenses. Additionally, looking at how much is at your disposal in a month, you can plan ahead by setting a budget. This will help you to avoid overspending, falling into debt, or even draining your savings.
But supposing you are off the ramp to retirement but you feel that you haven’t saved enough, it is a good idea to look at other strategies outside your portfolio that can help you broaden your assets in the golden years of retirement. For instance, you can plan to work longer. One of the rules that we should strive to maintain: work as long as you are healthy and able to. That is the only thing you can count on rather than waiting for the markets to self-adjust and take care of you during the retirement years.
What are the risks you are willing to take?
When setting up your retirement savings, you should be able to determine beforehand how you are going to allocate your funds. Where will you put your money? Is it in stocks, bonds, a money market account, or even CDs? Some of the options will be riskier than others. Typically, the higher the risk, the higher the return, and often, the low-risk investment will often provide a low return rate on your investment. “In general, stocks have higher potential returns with higher risks in the long term, and CDs have virtually no risk,” Tenpao Lee, a professor of economics at Niagara University in New York Lee says.
Do not make any rash decisions and say that you will put your money in either low risk or a high-risk investment rather, sit down with your financial advisor and think through all the options. Once you have an option that you are comfortable with, go for it. The good thing about working with financial professionals is that they can help you to align your level of exposure to market risks to what you desire.
What Is Your Retirement Timeframe
Assuming that you are young, say in your 20s, 30s, and even 40s you may consider choosing an investment option that has a moderate-to-higher risk attached to them. For instance, if you chose stock options as your preferred investment option, and it goes down, you still have time for the market to recover and move up again. “In a very general sense, those with a longer time horizon can usually afford to have a more aggressive portfolio allocation,” says Drew Feutz, financial planner- Market Street Wealth Management Advisors. But if you are in your 50s, you may consider moving your cash to a safer option.
Be Prepared to Retire
We all do at some point, but how you retire differentiates you from other people. By being prepared I mean you mentally, and financially. Well while you might have some cash stacked up somewhere, it may not be enough. You need to have some cash on hand. If you run into unexpected medical expenses or maybe you need a home improvement before retiring, you should avoid reaching out to your long term savings. In this regard, consider keeping some emergency funds aside may be in a checking account. This is money you can easily access.
Think Far Beyond Market Conditions
Some people get so anxious and worried about the market dipping or going into recession. To avoid this, you may want to set some of your funds in an account that will not be affected by the market fluctuations. You may choose to use the products that will only pay you interest. This includes savings accounts, checking accounts, and CDs at the commercial banks. Additionally, you could also opt for annuities through insurance companies. These options are safe because your money is not directly in the market. Also, note that these plans are often relatively low risk which means a lower rate of return.