4 steps to market-proof your retirement

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People often underestimate the financial implications that timing can have on retirement. Consider this scenario: You retire confidently with $1 million, but immediately get hit with a huge stock-market decline.

“A major mistake I see people make is to assume that their investment returns will be average every year of retirement,” says Daniel M. Keady, CFP®, chief financial planning strategist at TIAA. “Retire when the market is up and it can bolster your portfolio for the years ahead. But if you retire in a year when the market is down, a fixed withdrawal plan may eventually come up short and you can run out of money in retirement.”

A market downturn around the time of retirement is a serious risk that can greatly affect your quality of life and hard-earned retirement.

And while it is impossible to guarantee you retire in a strong economic market, there are steps you can take to help protect yourself and your financial future, regardless of what happens with the market.

Keady offers four tips for protecting yourself against a market downturn in retirement:

Build up your income for the future

If you’re young or just starting out, consider investing in mutual funds and slowly build an income through annuities. An annuity is a financial product that can generate regular income payments in retirement for your entire life, no matter how long you live. You can begin to invest in an annuity through your employer, if available, or you can purchase one on your own. The more you build up in the annuity over the course of your life, the less you will have to worry about volatility or a downturn close to retirement.

“When this happens,” says Keady, “you can convert a portion of your savings into an immediate annuity, which may help reduce sequence of returns risk and cover essential expenses throughout your lifetime, regardless of what happens in the market.”

TIAA offers fixed annuities that are guaranteed to grow every day during your savings years regardless of market fluctuations and provide guaranteed monthly payments that never run out.

Follow a long-term strategy

The best investment strategy is a long-term one. If you buy and sell your investments frequently, you’re likely to buy and sell based on panic or excitement. Instead, being proactive can partially protect you from the impact of a future volatile market by rebalancing your portfolio back to your risk level regularly.

Plan for longevity

The other risk in retirement is longevity. More than half of 65-year-old men will live beyond age 85 and one in three is expected to live to at least age 90, while nearly two-thirds of 65-year-old women are expected to live to age 85 and almost half will live to age 90[i]. Unfortunately for many, their savings will not be adequate. Be sure to take your life expectancy into account when planning for retirement.

Consider Social Security

Add up your Social Security income, pension income and lifetime annuity income. If you run into issues of market volatility or longevity, will this be enough? Delaying retirement and Social Security claims for a few years to get a bigger future inflation-adjusted check can help add lifetime annuity income and may reduce the risk to your retirement income.

The idea of saving enough money for retirement can be overwhelming, and on top of that, sudden volatility close to retirement can drastically reduce quality of life in retirement. Follow these tips to help protect yourself and secure a source of income in retirement.

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[i] Society of Actuaries https://www.longevityillustrator.org/

Annuities issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.

“Market Proof” only applies to fixed annuities that are not subject to market risk. Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.

This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

(C) 2020 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, 730 Third Avenue, New York, NY 10017

Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.

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