Time to Safeguard Your Retirement: Reducing Risk and Securing Income

Why Retirees and Investors Approaching Retirement Should Reduce Risk Today

As you approach retirement, ensuring your financial security becomes increasingly important. The stock market's recent volatility serves as a reminder of the risks that come with heavy reliance on equities, especially for those nearing or already in retirement. While the allure of strong stock market returns is hard to resist, it's crucial to recognize the potential downsides of an equity-heavy portfolio in your retirement years.

The Case for Reducing Equity Exposure

For many investors, particularly those who have enjoyed the stock market's growth over the past decade, their portfolios have naturally become more equity-heavy. While this has led to impressive gains, it also increases the risk of significant losses in a downturn. For example, during the global financial crisis, a portfolio with 80% in stocks could have experienced a loss of around 40%, compared to a 27% loss for a more balanced portfolio with 60% in stocks.

As you transition from accumulating wealth to preserving it, reducing the volatility of your portfolio by scaling back on equities becomes essential. Doing so not only mitigates the risk of substantial losses but also helps protect the assets you rely on for income in retirement.

Building a Cushion of Safer Assets

One of the most effective strategies to safeguard your retirement is to build a cushion of safer, more predictable assets like bonds and cash. By reallocating a portion of your portfolio from stocks to these safer assets, you can create a buffer against market downturns. This approach ensures that you have a reliable source of income, even if the stock market underperforms in the early years of your retirement.

In fact, recent research shows that the highest safe withdrawal rates in retirement correspond with portfolios holding just 20% to 40% in equities. This balanced approach can help you maintain a steady income stream without being overly dependent on market performance.

Take Advantage of Current Opportunities

The good news is that the opportunity cost of shifting to safer assets is lower today than it has been in recent years. With interest rates on cash and bonds significantly higher than they were a couple of years ago, these assets now offer better return potential. High-yield savings accounts and certificates of deposit, for example, are currently offering attractive rates, making them viable options for retirees looking to generate income without the risks associated with equities.

By diversifying your income sources and reducing your reliance on stock market returns, you can achieve greater financial stability and peace of mind in retirement.

How Annuities Can Complete Your Retirement Plan

As you consider reducing risk and building a more balanced portfolio, it's also worth exploring options that provide guaranteed income for life. Annuities can be an excellent addition to your retirement plan, offering a reliable stream of income that isn’t dependent on market performance. By incorporating annuities into your strategy, you can further secure your financial future and ensure that your income needs are met, regardless of economic conditions.

Ready to explore how annuities can enhance your retirement security? Schedule a call with Horus today to discuss your retirement needs and how to build a plan that provides both stability and flexibility. Don't wait—take control of your retirement now.