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Financial advisors and influencers on social media often discuss the power of the stock market.
What Are Retirement Savings Risks?
One of the biggest risks for your retirement savings is market declines.
In 2022, the S&P 500 lost 19.44% of its value.
However, in 2023, it rebounded with a 24.23% gain.
So, how do these big market swings affect a retirees portfolio?
Lets take a look.
If you follow the 4% withdrawal rule, you would have taken out $40,000 in 2022.
Then,stock market declineplayed havoc with your portfolio.
First, your portfolio dropped by $194,400 to $805,600.
As you may know, 2022 was a bad year for many investors.
However, not understanding how much risk you should take made this example look even worse.
Plus, you would have sold assets at low points without giving them the proper time to rebound.
If preservation of principle is more important, then they can be more conservative in their strategy.
Here are a few strategies to consider.
Consider diversifying into different assets.
Some examples include real estate,cash-value life insurance, annuities, bonds and gold.
Diversify Your Portfolio
Diversifying your portfolio is another strategy to lower your risk.
Its unlikely that every single investment will decline by the same amount.
In addition, consider diversifying your portfolio by sector.
The technology industry might be booming while the manufacturing industry is lagging.
Having a good mix in your portfolio minimizes your risk of large losses.
Leverage Less Risky Investments
As you approach retirement, your risk tolerance should decrease.
This means your portfolio isnt invested in high-risk assets like startups.
Instead, you might have a mix of stocks,bonds and cash.
Having a combination of different assets helps you manage market downturns.
You must look at your income needs and long-term goals to find the correct balance in your retirement savings.
When are you planning on retiring?
This is because your portfolio has time to recover from market downturns.
Unfortunately, since youre already retired or getting close, you would not want to take on this risk.
Also, look at your income needs.
How much income do you need each year to support your lifestyle?What income streamsdo you currently have?
As your income needs change, your risk tolerance will too.
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