Volatility Is Back: What to Do Next to Protect Your Retirement from Market Risk
After a summer of relative calm, worries over a future market crash have reached their highest levels in 2021. Here are some ideas to help safeguard your retirement.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
We got a taste of what a return to normal life felt like over the summer. COVID-19 cases were waning, the stock market was nearing record highs and worries over retirement risks like volatility and inflation weren’t necessarily top of mind for American investors.
Fast-forward just a few weeks and things look a lot different. Concern over the Delta variant, soaring inflation and major swings in the market are creating a perfect storm for Americans. In fact, the Allianz Life Q3 Quarterly Market Perceptions Study found that people are more worried that a big market crash is in on the horizon than they have been all year. At the same time, nearly seven in 10 (69%) say they are worried that the increase in COVID infections will cause another recession.
In addition to concerns about the impact of market volatility on retirement security, worries over inflation are also high – with many believing it will get worse and affect retirement plans. The study found that 78% of Americans expect inflation to get worse over the next year, and 69% say it will negatively impact their purchasing power over the coming months.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That’s a lot for any investor to weather, but those nearing retirement might really be feeling the pressure and looking for ways to mitigate some of these major risks to retirement security. Here are a few ideas.
Keep off the sidelines
The study found that more than two-thirds (67%) say they are keeping some money out of the market to protect it from losses. While it might feel a little counterintuitive, it’s important to remember that money left out of the market – even in times of volatility – isn’t working hard for you. This money, while subject to potential market drops, will also miss out on gains when the market recovers. However, always remember to set aside some cash for an emergency or rainy-day fund.
Stay (or return to) the course
This common adage is so important during times of volatility. For those nearing retirement, major market drops can be gut-wrenching. Be smart about not selling off during a downturn, explore buying low and be conscientious about rebalancing efforts. If you scaled back retirement savings or 401(k) contributions during the pandemic to help manage other finances, here is your reminder to revisit your retirement strategy and re-up where you may have cut back.
Explore protection products
If you’re not ready to dive back into the market completely, a financial product that offers a level of protection might be a good fit for your portfolio. The study found that people are increasingly likely to say it’s important to have some retirement savings in products that protect from market loss (70% in Q3 compared with 64% in Q2). Further, nearly three-quarters (72%) say they would be willing to trade off some upside growth potential to have some protection from market loss. Those with high investable assets (>$200K), are even more likely to agree that it is important to protect retirement savings from loss (83%), and that they are willing to sacrifice gains for this protection (81%).
Some products, like an annuity, can offer a level of protection against market risk, as well as the opportunity for income increases in retirement. The opportunity for increasing income may either be built into the contract, or it could be optional and available for an additional cost.
Other options for clients looking to help mitigate risk include certain exchange-traded funds (ETFs) that allow you to participate in the growth potential of equities while also providing the opportunity to address downside exposure and volatility.
Address inflation head on
With inflation measures reaching some of their highest levels in decades due to the COVID-19 pandemic, it’s no surprise that 72% say they are concerned the rising cost of living will impact their retirement plans, and 70% say they are worried they will be unable to afford the lifestyle they want in retirement.
Now is the time to work with your financial professional to address these risks before you enter retirement. Think through things like retirement income needs based on rising costs now, as well as over the course of a longer retirement. It might also be helpful to discuss annuity options and the steady stream of lifetime income they can provide. Some annuities can also offer increasing income potential through either built-in or additional cost riders to help address the effects of inflation.
Market volatility has been a near constant over the past few years. And while COVID-19 continues to be an unpredictable factor, taking steps now to address volatility and inflation can help set up a retirement strategy for success in the future.
*Allianz Life conducted an online survey, the 2021 Q3 Allianz Life Quarterly Market Perceptions Study, in September 2021 with a nationally representative sample of 1,005 respondents age 18+.
Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.
Investment involves risk including possible loss of principal. There is no guarantee the funds will achieve their investment objectives and may not be suitable for all investors.
-
Ask the Tax Editor: Federal Income Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on federal income tax deductions
-
States With No-Fault Car Insurance Laws (and How No-Fault Car Insurance Works)A breakdown of the confusing rules around no-fault car insurance in every state where it exists.
-
7 Frugal Habits to Keep Even When You're RichSome frugal habits are worth it, no matter what tax bracket you're in.
-
For the 2% Club, the Guardrails Approach and the 4% Rule Do Not Work: Here's What Works InsteadFor retirees with a pension, traditional withdrawal rules could be too restrictive. You need a tailored income plan that is much more flexible and realistic.
-
Retiring Next Year? Now Is the Time to Start Designing What Your Retirement Will Look LikeThis is when you should be shifting your focus from growing your portfolio to designing an income and tax strategy that aligns your resources with your purpose.
-
I'm a Financial Planner: This Layered Approach for Your Retirement Money Can Help Lower Your StressTo be confident about retirement, consider building a safety net by dividing assets into distinct layers and establishing a regular review process. Here's how.
-
The 4 Estate Planning Documents Every High-Net-Worth Family Needs (Not Just a Will)The key to successful estate planning for HNW families isn't just drafting these four documents, but ensuring they're current and immediately accessible.
-
Love and Legacy: What Couples Rarely Talk About (But Should)Couples who talk openly about finances, including estate planning, are more likely to head into retirement joyfully. How can you get the conversation going?
-
How to Get the Fair Value for Your Shares When You Are in the Minority Vote on a Sale of Substantially All Corporate AssetsWhen a sale of substantially all corporate assets is approved by majority vote, shareholders on the losing side of the vote should understand their rights.
-
How to Add a Pet Trust to Your Estate Plan: Don't Leave Your Best Friend to ChanceAdding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
Want to Avoid Leaving Chaos in Your Wake? Don't Leave Behind an Outdated Estate PlanAn outdated or incomplete estate plan could cause confusion for those handling your affairs at a difficult time. This guide highlights what to update and when.
