How to Help Recession-Proof Your Retirement Savings

After the rollercoaster we've experienced these past couple of years, and the down market we’re experiencing thus far in 2022, it’s natural to wonder if you’re doing as much as you can to protect your retirement nest egg from stock market volatility.

Even when the market falls during economic turbulence, you have more power than you realize. You just need to "Take Action" which frankly, is the opposite of "Stay the Course". Let's face it. Most people reach a point in their lives when the course no longer makes sense. So how do we effectively make changes in our financial plan? These five steps can help to keep you on track during uncertain economic times.

1. TRANSITION SOME SAVINGS OUT OF THE MARKET

Investing in the stock market always comes with a measure of risk. In exchange, over time you’re typically rewarded with higher returns than those you’d get from savings accounts, CDs, and other comparable accounts. But sometimes the market dips and your portfolio takes a hit.

The question many people have is, "should I get out when the market begins to decline?" Not always and not everyone, but for a more mature investor- Yes. Absolutely. It is a very good move for you to make at least some of your money safe before and especially during a market decline.

If you are over-invested and carrying too much risk for your age, this could mean that you might not have enough time to recover from a major market decline before you need to use your savings. For example, what would happen if a recession depleted a big chunk of your savings and then it took almost 10 years to recover as it did during The Great Recession of 2008?

The Great Recession stands as a cautionary tale about risk, investing in only what you know, and the dangers of “staying the course”. While the specific causes are still debated today, the culprits behind that economic collapse were a combination of several occurrences like:

• the subprime mortgage market
• a swift increase in interest rates by the Federal Reserve
• a credit crunch and the significant drop in bank lending
• risky Wall Street behavior
• toxic securities, packaged and repackaged, causing the value of the investments to nosedive

Unfortunately, in 2022 we are experiencing several of these occurrences again this year and without properly protecting your assets now, many of today’s retirees could find themselves in trouble. A solid financial plan during market decline includes true diversification; as in, having some of your savings in a place where you absolutely can not lose it no matter how far the market falls.

2. MAKE SURE YOU’RE REBALANCING

Throughout your life, you’ll want a mix of riskier assets for growth and safer assets for stability. The closer you get to retirement, the less risky you usually want to be. And, completely eliminating risk from at least some of your portfolio, is critical to today's retirees.

A good rule of thumb to follow, which is used throughout the financial industry is called The Rule of 100.  Take 100 and subtract your age. Whatever is leftover, is the amount of your portfolio that you could reasonably have at risk based on where you are at in your lifetime.  (Ex. For a 60-year-old, you wouldn’t want to have more than 40% of your assets tied up in stocks, bonds, mutual funds, and other securities products which could lose value during market volatility.)

In addition to setting your mix of risky and safe assets and changing it as you get closer to retirement, you should also rebalance your At-Risk investments regularly. A long run of stock market returns can actually leave you taking more risk than you should if it isn't managed regularly.

3. GUARANTEE SOME PART OF YOUR RETIREMENT INCOME

Utilizing guaranteed income sources, which are not impacted by market volatility, like a lifetime income annuity can be a smart way to ride out a recession without serious losses. With this strategy, you will have a paycheck that you can count on each and every month, for the rest of your life, that won’t be impacted by the market.

Pensions and Social Security are also examples of stable sources of retirement income. If you’re on the verge of retirement, consider keeping enough cash in a risk-free location — like a savings account — to cover a couple of years’ worth of expenses. Cash value in permanent life insurance, like an Indexed Universal Life policy, this can be another tool for you to use to fund a cash reserve. In a low-performing market, you’ll be able to tap that cash supply instead of selling investments at a loss. As an extra plus in this environment, it will also grow tax-free.

4. DIVERSIFY, DIVERSIFY, DIVERSIFY

Without “True Diversification” the market risk to your portfolio is going to be way too high; especially for a retiree.

The goal of diversification within your investments is to keep your portfolio healthy, regardless of what the market is doing. True Diversification however, involves placing a portion of your money in a place where you absolutely cannot lose it during times of poor performance but where it will still grow at a reasonable rate of return during times that the market is doing well.

A good tool for achieving True Diversification would be a Fixed Index Annuity. These accounts grow based on certain indexes within the stock market, so you can experience the upswing of a positive market. But, they also lock in to protect your money during times of market decline so that you won’t lose money along the way. It’s a safe vehicle for your savings to accumulate at a reasonable rate of return over time with no risk.

It is important to work with a Fixed Index Annuity specialist and not an investment advisor when trying to add this product to your portfolio. This will help to ensure you are receiving the right information and that your annuity is structured correctly to meet your needs.

5. WORK WITH AN EXPERT, OR TWO!

Facing an uncertain market — especially as you close in on retirement — comes with high stakes.

A great financial advisor who specializes in securities and investments, will understand your financial goals and can guide you to investment options that help you build your savings over time. But, if making more of your portfolio safe makes sense to you for the phase of life you are in, a securities and investment advisor won’t be as effective for you, since they specialize in balancing risk as you grow your nest egg.

Especially if you are a more mature investor, you may need to seek the advice of a different kind of expert- a Safe Money Expert. This would be someone who specializes in helping more mature clients transition from At-Risk strategies to strategies that will not only protect the savings you’ve already established but will help you utilize them to meet your future income needs as well.

After all, a strong financial plan must include True Diversification if you are to properly prepare for the ups and downs of the market. That is how you safely weather a recession so that you can focus on what’s important; enjoying your retirement.

At Summerlin Benefits Consulting, we are Safe Money Experts. We specialize in Fixed Index Annuities and other strategies to help more mature investors protect their assets during a time in your life when it makes the most sense to do so. ​Call Today. Now is definitely the time to Take Action.