Money: Timing is everything when planning for retirement


Although “time is money” is a popular adage, when it comes to retirement, it’s often timing that matters most.

Significant losses or depletions to your savings early in retirement can shrink your nest egg. This is known as the sequence of returns risk, and it is an important concept to know about so you can adequately plan for your financial wellness in retirement.

Let’s take a closer look at some important considerations that can help create financial security later in life.

Avoiding early losses. Losses and significant depletions occurring early in retirement can have significant consequences for a your portfolio. Reducing the size of your retirement nest egg means that any possible future gains would accrue off a smaller base, so you might not have ample time to benefit from a market recovery, particularly if you need to make additional withdrawals from your retirement account.

Minimizing risks, yet maintaining equity exposure. It might seem that a simple solution for reducing a retiree’s sequence of returns risk would be for you to reduce your equity holdings in your portfolio in favor of fixed-income investments. However, this approach compromises the portfolio’s upside potential and might lead to quicker — and premature — reduction of your long-term savings..

Finding solutions that hedge against risk. Whether you’re in your 40s or 50s and looking for upside investment potential or are nearing your retirement years and find guaranteed options more appealing, annuity solutions can address a range of long-term retirement planning needs.

Income annuities are a useful hedge against sequence of returns risk for two reasons: They provide a guaranteed source of lifetime income that is not correlated to market ups and downs or interest rate fluctuations, and theylower the withdrawals that you might need to take to cover expenses. This is particularly good news should the market perform poorly in the early years of one’s retirement because these solutions can help retirees avoid selling at the bottom.

Closing the “risk gap” supports growth. Often, emotions can influence your investment decisions, particularly if you’ve been burned before. Fear of losses might leave worried investors sitting on the sidelines. Often, there is a gap between the exposure investors are willing to take and the exposure that might be needed to potentially grow your retirement nest eggs. A variable annuity with the purchase of an optional accumulation benefit rider addresses this “risk perception gap” because it can provide equity exposure coupled with principal protection on the initial investment. Those who use this retirement planning solution aren’t facing sequencing risks during those critical, early years of their retirement.

Without proper planning, the sequence of returns early in retirement can have a significant consequence to your financial well-being later on. Talk about your priorities and work to discuss strategies that ensure you can enjoy the retirement you’ve worked hard to create.

Claire Damgaard is an agent with New York Life Insurance Company in Dubuque.

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