Preparing for Retirement during a volatile market

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Retirement during a volatile market

May 1, 2024, 7:44:54 PM | Reading Time: 5 minutes

Preparing for retirement can already come with uncertainty, especially when you can’t predict how long you will live, what unexpected expenses you will face, or how life may change. Add in economic trends and market volatility, and protecting your hard-earned savings may seem impossible. Let’s explore some common concerns and potential options available to help mitigate the risk.

Common stock market retirement concerns

The ups and downs are a normal part of the market cycle, but any time there is a drop, it can be challenging not to get nervous, particularly if you’re nearing or in retirement. Bear markets, or when the market experiences a 20% or more decline in stock prices for a sustained period of time, may potentially lower the value of retirement savings. However, with strategic planning, one could minimize the risk to a nest egg and ensure the income needed to retire comfortably.

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

Why is my 401(k) losing money?

When the market goes through a down period, your 401(k) could potentially lose money based on the stocks and mutual funds in which your money is invested. If retirement is still years 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 during market volatility.

Is my retirement safe?

If a bear market hits just as you’re ready to head into retirement, you may worry that your retirement plan will get knocked off track. One key to being more proactive than reactive during market downturns is to already have a diversified retirement portfolio. This could help smooth out the highs and lows with more resilience and help ensure a portion of your assets are protected. Other temporary options could 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.

Should I retire when the stock market is down?

It can be tempting to re-route your retirement when the stock market drops. Continue to work with your financial professional to rebalance your portfolio if needed or identify how you can better protect your assets. A market downturn may not need to derail your retirement entirely.

Protecting your retirement savings from market volatility

There are many different ways you can protect your retirement savings from marketing volatility, and your financial professional can help. One option they may suggest is diversifying your portfolio and revisiting it regularly. Diversifying is typically used as a method of ‘spreading’ your risk, which means that your money may be less susceptible to market volatility.

The benefits of diversification

By having a variety of financial assets, such as annuities, individual retirement accounts (IRAs), and certificate of deposit (CD), that perform differently over time, you can help maximize returns while minimizing risk. The advantages of having a diversified financial portfolio include:

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

Understand 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?
How often do you prefer to track your daily, weekly, or monthly investments?
What do you expect from your investments during normal market conditions?
If the stock market drops, what are your expectations for your investments? 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.

Retirement options that can offer more security

There are options that can bring more security to a financial portfolio and help balance the potential volatility of investments. 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.

Talking to your financial professional about your retirement goals, risk tolerance, and how to create a personalized financial strategy can help boost your confidence about the future and your ability to withstand market volatility. The better you prepare and plan for market uncertainty, the more successful you can be at lessening both the financial and mental stress of navigating the market cycle and entering retirement as planned.

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 Midland National® Life Insurance Company, 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.

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