Connex Alumni

When many people think about risk, they think about investments. What will the market do? Will my investments survive the ebbs and flows of the economy? The challenge is that many traditional approaches to financial planning do little to safeguard your hard-earned retirement savings against these types of hazards. Are you prepared to take the risk?

A husband and wife had already begun pricing property in the Hill Country for their retirement when their plans took a dramatic turn. The couple had enjoyed many evenings watching travel programs and discussing the pros and cons of staying closer to their grandchildren for their so-called golden years. After working in management for nearly four decades and setting aside funds into a 401(k) and other investments, they had saved up a tidy sum for retirement. The couple’s financial advisor assured them that with a nest egg of $1.2 million earning an average 8% annual interest, plus Social Security income, they would be able to live comfortably on nearly $120,000 yearly income. What their advisor did not plan for was the U.S. stock market plummeting in late 2008—two years before their planned retirement.

Their portfolio was hit hard, and despite having diversified their investments between large cap and small cap stocks, as well as some fixed income assets, the once sizeable nest egg was down to less than $850,000. This meant their retirement income was reduced to $80,000/year. What would they do? The choices were to postpone retirement to rebuild their nest egg, or downsize their retirement plans to live more modestly. After saving money for 40 years, neither option seemed appealing.

A Wake up Call

This same scenario affected thousands of individuals nearing retirement in recent years. Sadly, it was not for lack of planning, but because they followed the conventional wisdom. The traditional approach to save for retirement has been to sock away money during your years in the workforce until you achieve a “magic number” that will spin off enough income for you to live on after you retire. But that magic number could be cut in half if the markets tumble.

A sound retirement plan should be structured to offer financial security, regardless of what the markets do. A sensible strategy to help safeguard assets is to choose investments that are safe or predictable or guaranteed. In this way, you can help ensure that you have a consistent income stream that provides enough money to maintain the lifestyle you planned during retirement, even in a turbulent economy.