The past year has given investors plenty of reason to worry about retirement savings. Fear is the natural reaction to the perfect storm of inflation, rising interest rates, bank failures and market volatility, but the current economic climate is a reminder that people are stepping back and well positioned for the future. It also gives you an opportunity to check.
Planning for retirement is more complicated than most people realize, so long-term preparation is important. But a lot of people I’ve talked to spend weeks planning vacations, but they only have an hour or two a month to think about retirement.
When the economic environment is constantly changing, it is easy for investors to make reactive decisions based on daily ups and downs. However, these short-term decisions can have long-term consequences that work against your overall financial goals.
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F&G’s Third Annual Risk Tolerance Tracker (opens in new tab)A survey of nearly 1,700 American investors found that 73% were more worried about their retirement income than in the past two years. 61% in 2021 and 60% in 2020. He said 73% of respondents said the same, and the sentiment continues to grow in 2021 and beyond.
So what are investors doing? Nearly half (48%) say they are actively adjusting and taking action on their retirement plans. This is good news. A well-thought-out plan makes it easier to put emotions aside. But before you make any changes, you need to reassess what retirement means to you.
What does retirement look like for me?
One of the first questions financial advisors tend to ask is, “How much do I need to save for retirement?” It’s an impossible question to answer without delving deeper into a person’s lifestyle and vision of the future. For example, does the person need to support adult children or elderly parents? How long do people in their family tend to live? Do they have health problems? Is it important to them to leave money for the next generation, or are they going to spend most or all of what they have?
All of this has a significant impact on an individual’s “retirement numbers.”
Does my portfolio meet my goals?
Once you have a vision for your retirement, ideally with a financial advisor, you should evaluate your portfolio to make sure you have the right products to help you get there. Some are taking too much risk and putting themselves at risk, while others are not risking enough to generate the return they need.
People often say one thing and do another about their risk tolerance. According to our survey, 78% of his US investors say he has become more financially risk averse, up from 69% of him in 2021. Despite this, many investors still rely on volatile investment vehicles such as equities (41%), with some diversifying into riskier assets. Cryptocurrencies (20%), etc.
As people get closer to retirement, their risk tolerance naturally declines. At that stage in life, the risk of a large loss is not worth a few percentage points of extra profit. Insurance products like annuities can reduce the level of risk if you can eliminate the need to worry about whether or not retirement portfolio.
Many annuities protect against market downturns, act as a hedge against inflation, and come with terms that match life expectancy, thus reducing longevity risk. Annuities can provide another kind of security, a guaranteed income stream. Like life insurance, an annuity takes the worry out of spending knowing you’ll get a check every month for as long as you live.
Despite the advantages these types of commodities can offer, only 14% of Americans report owning them, indicating that they do not have enough options available to address these types of inflation and longevity concerns. It highlights how many investors are not taking advantage of it.
How do I create an overall plan?
Of course, creating a personalized portfolio is easier said than done. Investors should analyze the pros and cons of each and how they work together in a variety of plans when considering which product to purchase.
As mentioned earlier, insurance products can help you create a more holistic plan in addition to traditional investments, and talking to a financial advisor can simplify the process. 45% of US investors say they are willing to consider new financial products, but the vast majority (58%) do not use their advisor’s skills to create strong portfolios.
Investors can articulate their vision for the future, explore an expanded universe of financial products and connect with advisors to ensure they build portfolios that optimize opportunities and protect against downside risks. The current financial environment can be scary, but taking a break from day-to-day life and making long-term plans helps people focus on the big picture and sleep better at night.
