Market Risk Impacting Retirement Savings

Starting Retirement In A Down Market

One of the greatest market risk a retiree can face is starting retirement during a down market. The reason this is a big risk is because retirement account balances are their highest at retirement and this means there is potentially more to lose during a down market.

For example, let’s examine the chart below. The first year symbolizes a 50% drop in the market (remember 2008?). The hypothetical account balance in this chart went from $200,000 to $100,000 due to the 50% decline in the market. On top of that, since you started taking income for retirement, you withdrew $8,000 from the remaining $100,000 for expenses. This represents a 4% withdrawal rate. Notice the gains portrayed in year 2 and year 3. Even with theses big gains, you can see that you never fully recover from the first year loss.

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Similarly, the hypothetical chart below demonstrates the different phases of investing through one’s lifetime.

  • Funding phase – Actively contributing with market growth
  • Idle phase – No contributions with market growth
  • Withdrawal phase with market growth
  • Withdrawal phase in an up and down market (hypothetical 5% withdrawal rate shown)

Keeping your assets invested in risk based products may put your retirement at risk

Compare The Funding Phase vs The Withdrawal Phase - This Is How You Potentially Could Run Out Of Money!

Hypothetical example – Graph is not intended to represent any investment gains or losses. For illustration purposes only.

Use A Fixed Index Annuity To Protect Your Retirement Savings Against Unexpected Market Risk

Reducing or eliminating market risk (volatility) prior to or in retirement greatly reduces your chances of running out of money. At retirement, account balances are usually the highest and are more subject to market volatility.

Fixed index retirement annuities are one solution for mitigating market risks on retirement savings and income. These retirement annuities offer protection from losing money in the markets while giving you the benefit of market growth. One of the more popular features of newer annuity products are the ability to add Income options that guarantee annual income increases. This feature is designed to ensure your annuity payments keep up with inflation so you don’t fall behind.

Fixed index retirement annuities offer:

  • Tax deferred growth
  • Benefit of participating in market growth
  • Assurance of never losing money in down markets
  • Protected retirement income guaranteed for life – while maintaining liquidity of your assets
  • Income options that guarantee annual increases
  • Accelerated Benefit riders to cover chronic and terminal illnesses
  • Peace of mind…Never outliving your income!

For retirees concerned about losing retirement savings in uncertain markets, fixed index retirement annuities are a popular solution that offer income protection and peace of mind.

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Market Downturns Should NEVER Have To Mean Losing Your Retirement Savings

Solution: Example


You are 65, single and have saved $600,000 for retirement. Your life expectancy is approximately 85 years which means you will have 20 years to enjoy retirement. You have determined that you will need $50,000 per year to live on. The average worker receives $16,000 per year of Social Security benefits. That means you will need to pull $34,000 per year from your $600,000 savings. This equates to a 5.5% annual draw. This is more than the recommended withdrawal limit of 4%.

In order for your $600,000 savings to withstand 20 years of withdrawals that keep pace with inflation and variable market performance, you need a financial product that both guarantees your retirement income and regularly increases that income to keep pace with inflation.

One solution would be a retirement annuity with living benefit rider. A retirement annuity with living benefit rider not only protects your principle but it grows your monthly income check as well.

Market Risks Impacting Retirement Savings North Carolina

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