Most people spend decades saving for retirement. They work hard, contribute to their retirement accounts, and hope they'll have enough to enjoy the years ahead.
But there's one risk many people don't think about until they're already retired.
What happens if the stock market drops just as you begin relying on your retirement savings?
When you're still working, a market decline can be frustrating, but you still have something many retirees don't: time. You're earning a paycheck, continuing to save, and giving your investments the opportunity to recover.
Retirement changes that.
Once you're using your retirement savings to help pay your monthly expenses, a market decline can have a much bigger impact. If you need income while your investments are down, you may have to sell investments at lower prices. Those investments are no longer there to recover when the market rebounds.
This is called sequence of return risk.
Simply put, it's the risk that poor market returns early in retirement can have a much greater impact than those same returns later in retirement because you're taking withdrawals at the same time.
Imagine two hypothetical people retire with the same amount of money. They invest the same way, withdraw the same amount each year, and over the next 20 years earn the exact same average return.
The only difference is when the market declines.
One experiences a significant market drop during the first few years of retirement. The other experiences that same market drop much later.
Even though they earned the same average return over those 20 years, the person who experienced losses early in retirement may end up with less money because they were taking withdrawals while their portfolio was down.
That's why retirement planning isn't just about trying to grow your investments. It's also about protecting your portfolio when it matters most.
One strategy that may help is a buffered investment strategy.
Buffered strategies are designed to help reduce the impact of market losses over a defined outcome period while still allowing investors the opportunity to participate in potential market growth. While they don't eliminate risk or guarantee a positive return, they may help lessen the impact of a market decline during the early years of retirement, when your portfolio can be most vulnerable.
Like any investment strategy, buffered investments aren't right for everyone. In exchange for that added protection, your potential gains are typically limited. But for investors who want to remain invested while helping reduce the impact of a major market decline, they can be an important part of an overall retirement strategy.
At Airey Financial Group, we believe retirement planning is about more than chasing returns. It's about helping you build a strategy that balances growth, protection, and income so you can feel more confident about the future.
If you're approaching retirement or have recently retired, we'd be happy to talk about your retirement goals and whether a buffered investment strategy could play a role in your overall financial plan.
Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. Investing involves risk which includes potential loss of principal. A buffer reduces the amount that an investor can lose by a set percentage. Significant investment losses may cause a product to lose more than a buffer will protect against. All numeric examples and any individuals shown are hypothetical and were used for explanatory purposes only. Actual results may vary. (5757219)