Protect What Matters Most

Definition: 

The risk of your investments losing value due to fluctuations in the stock or bond markets.

Management:

• Asset allocation: Shift to a more conservative portfolio as you approach and enter retirement. This means reducing exposure to volatile assets like stocks and increasing investments in bonds, cash, and other stable income-generating assets.
• Diversification: Spread your investments across different asset classes (stocks, bonds, real estate, etc.) to reduce exposure to any single market downturn.
• Bucket strategy: Set aside different "buckets" of money for short-term needs (cash and bonds) and long-term growth (stocks). This helps ensure you're not selling investments at a loss to cover expenses.

Definition: 

The risk of outliving your savings, which is a growing concern as life expectancy increases.

Management:

• Annuities: Consider purchasing a fixed or immediate annuity to guarantee a lifetime income stream, which can help mitigate the fear of running out of money.
• Conservative withdrawal rates: Follow a sustainable withdrawal strategy, such as the 4% rule, where you withdraw no more than 4% of your retirement savings each year to help ensure your money lasts.
• Delay Social Security: By delaying your Social Security benefits until age 70, you can increase your monthly payment and reduce the risk of outliving other assets.

Definition: 

The risk of facing high medical costs or needing long-term care, which can quickly deplete savings.

Management:

• Medicare planning: Enroll in Medicare on time and consider supplemental policies (Medigap or Medicare Advantage) to cover gaps in coverage.
• Health Savings Accounts (HSAs): If you had an HSA while working, you can use tax-free withdrawals for medical expenses in retirement.
• Long-term care insurance: Consider purchasing long-term care insurance to protect against the financial impact of needing extended in-home care, assisted living, or nursing home care.
• Self-insurance: If you have substantial assets, you might choose to self-insure for long-term care by setting aside funds specifically for that purpose.

Definition: 

The risk that rising prices will erode the purchasing power of your savings over time.

Management:

Invest in inflation-protected securities: Consider investing in Treasury Inflation-Protected Securities (TIPS) or other inflation-hedging assets like real estate or dividend-paying stocks.

• Growth investments: Keep a portion of your portfolio in growth-oriented investments, like stocks, to help your savings grow and keep pace with inflation.
• Delay Social Security: Social Security payments are adjusted for inflation, so delaying benefits can provide a higher inflation-protected income later in life.

Definition: 

The risk that changes in interest rates will negatively affect your income, particularly if you rely heavily on fixed-income investments like bonds.

Management:

• Bond laddering: Spread out bond investments across different maturities to minimize the impact of interest rate fluctuations.
• Diversify income sources: Don’t rely solely on bonds for retirement income. Diversify with dividend-paying stocks, real estate, or annuities.

Definition: 

The risk of experiencing poor investment returns in the early years of retirement, which can permanently deplete your portfolio if you’re withdrawing money at the same time.

Management:

• Delay withdrawals: If possible, delay withdrawals during market downturns to allow your investments to recover.
• Use a cash buffer: Maintain a cash or short-term bond reserve to cover living expenses during market dips, so you don’t have to sell investments at a loss.
• Dynamic withdrawal strategies: Adjust your spending and withdrawals based on market performance, spending more in good years and less in bad years.

Definition:

The risk of not having enough liquid (easily accessible) funds to cover unexpected expenses or market downturns.

Management:

• Maintain an emergency fund: Keep 6-12 months of living expenses in a highly liquid account (like a savings account or money market fund) to cover unforeseen expenses.
• Avoid over-investing in illiquid assets: Be cautious of tying up too much of your wealth in assets like real estate or private equity, which can be difficult to sell quickly.

Definition: 

The risk that emotional decisions (fear, greed, panic) will lead to poor financial choices, such as selling investments during a market crash or overspending.

Management:

• Stay disciplined: Stick to your investment strategy, even when markets get volatile. Avoid making knee-jerk reactions to market drops.
• Use a financial advisor: A financial advisor can provide objective guidance and keep your retirement strategy on track, acting as a buffer against emotional decisions.

Definition: 

The risk that your estate won’t be distributed as you intend, or that taxes will reduce the amount left to your heirs.

Management:

• Estate planning: Work with an attorney to create a comprehensive estate plan, including a will, trusts, and clear beneficiary designations.
• Minimize taxes: Use tools like Roth conversions, gifting strategies, and trusts to minimize estate taxes and ensure your heirs inherit as much of your wealth as possible.

Definition: 

The risk of unexpected tax burdens, particularly from required withdrawals from retirement accounts or changing tax laws.

Management:

• Tax-efficient withdrawal strategy: Work with a tax professional to determine the most efficient order for withdrawing from taxable, tax-deferred, and tax-free accounts.
• Roth conversions: Consider converting some of your traditional IRA or 401(k) to a Roth IRA when your tax bracket is lower in early retirement to reduce future taxable income.