Monday, 27 May 2019
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2 Retirement Killers And How To Avoid Them – Forbes

The biggest fear I hear from those approaching retirement is the possibility of outliving their money.

The bull market we’ve experienced over the last nine years has caused many of us to forget how it felt when our 401(k)s became 201(k)s in 2008.

The bull market we’ve experienced over the last nine years has caused many of us to forget how it felt when our 401(k)s became 201(k)s in 2008.Getty Images

Many of us have been taught that, if we stash our retirement savings into our employer 401(k) plan, we’ll be fine when it’s time to retire — unfortunately, this isn’t necessarily the case.

Baby boomers have seen some difficult times in the market over the last 20 years and might wonder what the next 20 have in store. In order to make the most of your savings and help efficiently generate income in a volatile market, it’s important to stay on top of your retirement accounts.

Here are two retirement killers that can be a threat to your retirement plan and how you could combat them.

1. Market Loss

The bull market we’ve experienced over the last nine years has caused many of us to forget how it felt when our 401(k)s became 201(k)s in 2008.

Experiencing a large correction five years before or after your retirement date can make a huge difference in the amount of income your investment accounts can generate.1 It also will significantly decrease the amount of time these accounts can consistently distribute retirement income. Those who had retired or were planning on retiring had to go back to work or keep working to try and recover from the loss.

Market volatility has led many financial advisors and analysts to change their recommended withdrawal percentage from 4% to 2.8%,2 meaning that you could need more money than expected to generate enough income to supplement your Social Security check in retirement. Pulling money out of an account that has taken a large loss can multiply those losses even more.

Helping guard against market loss

It’s important that your portfolio is properly diversified among different, uncorrelated asset classes. I see too many portfolios with several mutual funds that all hold the same core funds, or employees with too much of their 401(k) invested in company stock.

To help guard against a market decline, you need asset diversification and a plan in place. Your strategy should give you the ability to get out of losing asset classes and into a defensive position during a decline, or get out of the market altogether to reduce further loss.

Risk can be mitigated in a volatile market by diversifying your assets with other products outside of the market, such as fixed or index annuities, which are often used as bond alternatives.3  

Fixed annuities offer a specified interest rate, generally higher than what banks are offering, for a certain period of time. Because fixed and indexed annuities are protected from market risk and provide higher returns than what is available at your local bank, they do limit access to funds.

2. Taxes

It doesn’t matter how much your retirement account is worth; it matters how much you get to keep from Uncle Sam.

The vast majority of people I see have almost all of their retirement savings in tax-deferred accounts, such as 401(k)s, IRAs, or 403(b)s. When a distribution is taken out of these accounts, it’s taxe