COVID-19 and Retirement Planning

Typically, investors will make portfolio allocation changes 10 years from retirement, and those financial decisions can greatly impact their enjoyment of life during those much-anticipated years. Here are two strategies you may consider in this precarious period before retirement.

Stay the course
For those 50-year-olds who want to continue to be invested in the market, it’s important to consider market risk and the negatives of market timing. Remember the value of long-term investing. For example, for the average investor a buy and hold strategy with $100,000, earning S&P returns, would have earned $25,515 more than the average equity fund investor from 2016-2019, according to Dalbar.¹

Change your course
What’s potentially worse than market timing? Doing nothing. Lots of investors are biased by loss aversion, in which people give more weight to the possibility of loss than the possibility of gains, and as a result they stay away from the market. Clients who are over-weighted in conservative investments need to be reminded of the value of staying in the market and the impact of underinvesting with more than 10 years of market participation at stake.

Most investments cannot protect you from the risk of losing money. However, an annuity is a long-term financial solution that combines insurance and investment characteristics and may provide some guarantees.  These guarantees are like guardrails.

Think about driving across a suspension bridge. As you drive across, what’s on either side of the roadway? Guardrails. You don’t need the guardrails to drive over the bridge, but you probably feel safer knowing that you won’t fall. This gives you confidence to make the journey across. Investment protection guarantees act as guardrails for your portfolio which may give you the courage to invest during the vital span before retirement.

One way to maintain a certain level of equity exposure for one’s retirement assets, may be with a variable annuity that can create an opportunity for your savings to potentially grown in the market. You need to accept some risk that investment returns will fluctuate. These solutions also offer an optional benefit called an accumulation benefit rider that would guarantee a minimum value after a set period.

Keep in mind that while accumulation benefit riders provide investment protection, they also contain certain limitations and restrictions, including a constraint on the amount the policyholder can invest in equity funds. Of course, investors should consider fees, guidelines and risks with variable annuities and riders. Withdrawals or surrenders may be subject to a surrender charge, ordinary income taxes and, if they’re made prior to age 59½, may be subject to a 10% IRS penalty. Variable annuities are sold by prospectus, which should always be read carefully in order to learn more complete information about the investment.

In these uncertain times, protect your financial well-being and gain peace of mind with solutions to invest confidently and protect investments for today and tomorrow. Stay safe!