Helping to Protect Your Retirement Nest Egg against Unforeseen Risks
By Sammie Gatti, North Dallas LIVING WELL Magazine
When many people think about risk, they think about investments. What will the market do? Will my investments survive the ebbs and flows of the economy? The challenge is that many traditional approaches to financial planning do little to safeguard your hard-earned retirement savings against these types of hazards. Are you prepared to take the risk?
A husband and wife had already begun pricing property in the Hill Country for their retirement when their plans took a dramatic turn. The couple had enjoyed many evenings watching travel programs and discussing the pros and cons of staying closer to their grandchildren for their so-called golden years. After working in management for nearly four decades and setting aside funds into a 401(k) and other investments, they had saved up a tidy sum for retirement. The couple’s financial advisor assured them that with a nest egg of $1.2 million earning an average 8% annual interest, plus Social Security income, they would be able to live comfortably on a nearly $120,000 yearly income. What their advisor did not plan for was the U.S. stock market plummeting in late 2008—two years before their planned retirement.
Their portfolio was hit hard, and despite having diversified their investments between large cap and small cap stocks, as well as some fixed income assets, the once sizeable nest egg was down to less than $850,000. This meant their retirement income was reduced to $80,000/year. What would they do? The choices were to postpone retirement to rebuild their nest egg, or downsize their retirement plans to live more modestly. After saving money for 40 years, neither option seemed appealing.
A Wake up Call
This same scenario affected thousands of individuals nearing retirement in recent years. Sadly, it was not for lack of planning, but because they followed the conventional wisdom. The traditional approach to save for retirement has been to sock away money during your years in the workforce until you achieve a “magic number” that will spin off enough income for you to live on after you retire. But that magic number could be cut in half if the markets tumble.
A sound retirement plan should be structured to offer financial security, regardless of what the markets do. A sensible strategy to help safeguard assets is to choose investments that are safe or predictable or guaranteed. In this way, you can help ensure that you have a consistent income stream that provides enough money to maintain the lifestyle you planned during retirement, even in a turbulent economy.
Planning for the Unplanned
When it comes to living the lifestyle you envisioned for retirement, other hazards, including liability risk, insurance risk, or business risk, also can wipe out your nest egg in short order. In addition to creating reliable income, a smart retirement plan will also help to preserve the money you have worked hard to earn. This process involves identifying potential risks and evaluating strategies to reduce your exposure; for example, setting up a family corporation or trust, arranging proper insurance coverage, and structuring to help protect assets from future divorces, liability suits or bankruptcy issues.
We like to think that bad things will never happen to us, and we will eventually live happily ever after. Reality tells us otherwise. With proper planning, you can not only formulate an idea of what you want your retirement to look like, but also help create a clear roadmap to walk out your dream with less fear of sudden detours.
Sammie Gatti is a vice president at The Botsford Group and has more than 15 years experience in financial planning, with particular emphasis on the retirement needs of senior employees and executives of major Dallas companies. She can be reached at 214-423-4200.
Securities Offered through DeWaay Financial Network, LLC, Member FINRA/SIPC. Advisory services offered through DeWaay Advisory, LLC, A Registered Investment Advisor and Biltmore Capital Advisors, A Registered Investment Advisor. The Botsford Group and Biltmore Capital Advisors are unaffiliated with DeWaay Financial Network, LLC. The views expressed are not necessarily the opinion of DeWaay Financial Network or DeWaay Advisory and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal. Not all investment strategies or products are suitable for everyone.