Successfully Saving for Retirement is Only Half the Journey

The strategies you used to get to retirement probably won’t work once you’re there. You’re going to need to chart a new course.

(Image credit: PongsakornJun)

Income planning changes greatly as you near retirement. The strategies and tactics you have used for years, or even decades, to build your portfolio need to be adjusted as you reach this point. Retirement-minded individuals can’t follow the same roadmap they used in their accumulation years.

When it comes to money, almost every retirement-minded individual is looking for safety, yield and liquidity with their financial vehicles. But it’s difficult, if not impossible, to find all three of those characteristics without some major diversification. Still, there are ways for you to find a good combination of all three to rely on when you are at or near retirement, but you need to break down your portfolio into two distinct categories.

1. The Principal-Protection World

There are some financial vehicle options that are pretty secure. These include bank CDs, government bonds, fixed annuities and other similar products. The principal, interest and terms are guaranteed, but there are some downsides, including penalties for early withdrawals and fees. Another drawback to these financial vehicles is their low interest rates.

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Options do exist that offer principal protection while letting people take advantage of gains in the market. These products include:

  • Treasury Inflation-Protected Securities (TIPS)
  • Equity-linked CDs (ELCDs) at banks
  • Fixed index annuities

These products offer principal protection with interest determined based on an external market index. But, just like CDs or government bonds, there are penalties for early withdrawals, and your money is not directly invested into the market. However, there’s generally more potential to earn interest than some of the more liquid financial products.

2. The Risk World

Finally, there is the sphere that does have risk but also offers the upside of potential growth. In this world, you will find these choices, among others:

  • Stocks
  • Mutual funds
  • Options
  • Real Estate Investment Trusts (REITs)
  • Variable annuities

Of course, in the Risk World, the principal is not guaranteed. Neither are interest or earnings. But the term is usually open-ended and, over time, these investments often prove effective. That time factor is one of the downsides for those at or near retirement, because most of us simply aren’t sure how much time we have to really make gains with our investments.

As we near retirement, we have to be careful how we distribute our money between different financial products. Of course, we all love the products that have market risk when the market is going up but, when it’s plunging, it’s a very different story. Very few people at or near retirement can afford to face a major loss like what happened to too many of us back in 2008. The question for many, especially those of us drawing close to retirement, is how to avoid those kinds of losses.

Drawing up a plan that balances the worlds of principal protection and risk is a complicated process. A good financial professional, especially one who focuses on planning for retirement, can help you plan for market volatility. They’ll be able to help you manage risk or even find out how much risk you are comfortable with. A knowledgeable retirement professional can help map out how much of your assets you want subject to market risk and how much you want secured with principal protection.

Before you build your retirement income plan, you have to know how much of your wealth you want in each of the worlds mentioned above. There’s no one model that works for every individual, of course. Some of us want more guaranteed income. Others prefer to rely on the stock market and other financial vehicles, which include elements of risk.

Regardless, all retirement-minded individuals want to move from paychecks to “playchecks.” A good retirement professional can help you do just that, helping you navigate these two worlds of financial vehicles.

Don Ross, founder and president at Ross Wealth Advisors, has more than 25 years’ experience in the insurance and financial services industry. Don lives in Upper Arlington, Ohio. He and his wife, Joni, have three children: Judith, Ryan and Lance.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Don Ross, RFC
President and Founder, Ross Wealth Advisors

Don Ross, founder and president at Ross Wealth Advisors, has more than 25 years' experience in the insurance and financial services industry. He has passed the Series 7 securities exam and holds a life insurance license in Ohio. Retired from the military after more than 20 years of service as a pilot in the Ohio National Guard, Ross lives in Upper Arlington, Ohio, and enjoys traveling, yard work and cycling. He and his wife, Joni, have three children: Judith, Ryan and Lance.