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6 Ways to Protect Your Retirement Savings

Rachel Hartman


If you're concerned about upcoming market fluctuations or a possible recession, it's natural to want to evaluate your retirement savings plan. The majority of Americans (72%) say it's important to protect retirement savings, according to a 2019 Allianz Life survey. To safeguard your nest egg, it's important to think about your current financial situation as well as your future expectations.

To protect your retirement savings, you'll want to:

-- Evaluate the income you'll need during retirement.

-- Understand the types of risks you're willing to take.

-- Plan for emergencies and taxes.

-- Consider saving options that aren't affected by the market.

Follow these guidelines to help ensure your retirement funds are safe and will be available in the future when you need them.

Develop a Financial Forecast for Retirement

Estimating the amount of cash you will need for each year of retirement can help you determine how big of a nest egg you should save. "Nowadays, if you retire at 65, you should have a financial plan for 20 years," says Tenpao Lee, a professor of economics at Niagara University in New York. Since you'll want your funds to last during these decades, you might look at estimated withdrawals from a 401(k) and IRA as your new paychecks. These amounts, along with Social Security benefits or other retirement income, will be used to cover your everyday expenses. Setting a budget for retirement can help you avoid overspending, falling into debt or depleting your savings.

[See: How to Pay Less Tax on Retirement Account Withdrawals.]

Know Your Tolerance for Fluctuations

When investing for the long term, you'll usually be able to choose how to allocate your funds, such as placing them in stocks, bonds, a money market account or CDs. Some forms of investments carry very little risk, while others have a greater amount of risk attached to them. Typically, "your risk is higher with a higher rate of return," Lee says. Lower-risk investments often provide a lower rate of return. "In general, stocks have higher potential returns with higher risks in the long term, and CDs have virtually no risk," Lee says.

Before choosing a high-risk or low-risk investment, sit down with an advisor to think through what you're comfortable with. You might be able to take a questionnaire or fill out a survey to help identify the level of risk that best suits your personality and situation. A financial professional can then help you adjust your investments to align with the level of risk you want to take on. "Your portfolio may be quite different from others," Lee says.

Consider How Soon You Want to Retire

If you're in your 20s, 30s or 40s, you might choose investments with a higher risk attached to them. For instance, if you invest in stocks and the market takes a downturn, you'll still have years until you need the funds, which will allow the market time to move upward once again. "In a very general sense, those with a longer time horizon can usually afford to have a more aggressive portfolio allocation," says Drew Feutz, a financial planner with Market Street Wealth Management Advisors in Indianapolis. If you're in your 50s or several years away from retirement, you may decide to shift your money into lower-risk investments. "Those with a shorter time horizon typically need a less aggressive portfolio," Feutz says.

[See: 9 Ways to Avoid 401(k) Fees and Penalties.]

Have Some Cash on Hand

If you run into unexpected medical expenses or need a major home repair before retirement, you'll want to avoid reaching into your long-term savings to cover the costs. Consider keeping some emergency money in a checking or savings account that you can easily access. "The last thing you want to do is pay huge penalties for dipping into your retirement accounts early," says Deacon Hayes, founder of WellKeptWallet.com. In addition to paying fees for withdrawing money early, the amount you take out won't have the chance to earn interest and grow during the coming years.

Plan for Taxes in Retirement

To avoid tax surprises that could cut into your nest egg in retirement, it can be helpful to think ahead and know what to expect in the future. "The way you invest can impact your current tax returns, but it could impact future ones too," Hayes says. For example, if you put money into a traditional IRA, you can deduct the contributions from your current tax return. When you withdraw money from the account in retirement, you'll have to pay taxes on it. With a Roth IRA, you will pay taxes on the amount you contribute to the account, but you won't be required to pay taxes on the money when you take it out during retirement.

[See: 11 Ways to Avoid the IRA Early Withdrawal Penalty.]

Think Beyond the Market

If you're anxious about market dips and recessions, you might choose to set some funds in accounts that are generally not affected by market fluctuations. To do this, "use products that only pay interest," says Christopher Anselmo, president of Anselmo & Company and Brookside Tax & Financial Group in Middleburg Heights, Ohio. This might include savings accounts, checking accounts and CDs at banks. It could also involve immediate annuities, fixed annuities or indexed annuities through an insurance company. With these options, "Your money is not directly in the market," Anselmo says. "It's in the hands of the bank or insurance company." Keep in mind that these plans often include ongoing fees and a lower rate of return than other investment options.



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