Are you in the process of planning your retirement for that beautiful future you have always imagined? Great! If your answer is yes. That’s a step in the right direction. However, a well planned strategy from an informed perspective on how to protect your retirement savings should be incorporated into your retirement planning, considering the potential threats certain factors can pose to the security of your life savings.
“There are specific strategies and approaches to financial management in retirement that require specialized expertise and skill.” Retirement Advisors at RetirementIncome.net
Proper Planning, they say, Prevents Poor Performance. So plan how to manage your risk factors, especially the biggest threat to your finances.
Some common threats to your retirement savings
You need to pay close attention to the following:
- Stock market crash
- Economic downturn
- Uninsured long-term care cost
- Debt/huge loans
- Living above your means
- Poor asset allocation
- Inadequate life insurance
- Unforeseen major expenses
- Loss of job/unemployment
While some of these risk factors are as a result of ignorance or bad decision making on the part of the investor, for instance, poor asset allocation, others are due to circumstances beyond the investor’s control, e.g., inflation.
Whatever may be the category under which the risk to your finances falls, you do not want to lose all of your life savings or a substantial portion of it to that threat. Losing your nest egg is definitely not in your plans, that is why you must employ every possible means to protect your retirement savings, and failure to take necessary precautions will be to your own detriment. The big question now is, how do I protect my retirement savings in the face of all these threats? Let us use the very common stock market crash as a case study:
Protecting your retirement savings
It is often said that the biggest threat to your portfolio is an unexpected crisis, not the crises you already anticipate.
And one of the most common threats to your life savings as an investor in stocks is the stock market crash. The sudden, dramatic decline of stock prices in the stock market can result in the loss of your retirement savings and leave you in a very bad shape. The question now is, how do you guard against losing all your life savings to a stock market crash? Or how do you minimize the negative effect of a stock market crash on your retirement savings? According to an article on Impact Partnership by Tom Fortino, titled “Six Major Threats to Preserving Your Wealth,” “A good definition of asset protection is the act of safeguarding one’s wealth against potential and unforeseen events…”, which brings us to the issue of diversification.
Many financial experts and advisors are strong advocates of diversification. Investors are often advised to diversify their retirement portfolio by putting their funds in at least two or more investment schemes. This will help you to establish a balance in your retirement portfolio that will ensure the security of your life savings. It’s wise to diversify rather than putting your eggs in one basket. Combining your portfolio mix is a good way to protect your retirement savings. An article on Forbes titled “The Best Way To Invest For Retirement” encourages diversification through compromise, it says that “the principle of compromise is basically adding bonds to your stock portfolio with the idea that bonds are a lot less volatile than stocks. So you can reduce the overall volatility of your portfolio by adding bonds…”