Retirement’s Biggest Risks Come after You Reach the Summit

I love a good metaphor.

That three-legged stool of retirement planning that old-timers so often refer to? Good stuff.

Sure, with pensions disappearing, Social Security getting wobblier every year and personal savings often coming up short, that stool is a bit shakier these days. Still, the image makes a point.

And who can resist a sports metaphor? My favorite is the retirement red zone – when you’re close to the goal line and every move counts, you and your team must work even harder to protect your money.

But the best way I know of to describe the challenges we all face in retirement planning is to compare it to climbing Mount Everest ... and then getting back down.

Many men and women have imagined scaling that mountain and how it would feel to reach the peak: the glow, the glory, the sense of satisfaction you’d have accomplishing such a goal.

It’s interesting, though, that people always picture themselves on their way up the mountain, and at the top, but not necessarily on the trip down. And that’s where most people get hurt or lose their lives.

Accumulation is the easy part

It’s not so very different from working and saving for retirement. We all picture that day when we’ll have stashed away enough money to call it quits. Some of us get really good at the accumulation stage – the journey up that retirement mountain. But we’re not necessarily prepared for what comes after that: making the money last for the rest of our lives.

That’s the concern I hear most often from the people I meet through my workshops or in my office. They worry – rightly so – that they’ll outlive their savings.

A retirement lesson from Everest

The concept of summiting and descending Mount Everest can teach us a lot: The strategies you use to get to the top will not be the same ones that will get you down safely.

The main goal for mountain climbing is “Don’t lose your life.” The mantra for your retirement journey should be “Don’t lose your money.”

That seems obvious, but it’s amazing how much risk pre-retirees – people who are just five to seven years away from their goal retirement age – will keep in their portfolio.

Clearly, you can’t climb a mountain without risk – and you can’t beat inflation without the chance of losing some money. These days, even the savings instruments with the least amount of risk - such as certificates of deposit or 13-week Treasury bills, for example – may, in a sense, lose money as they could lose purchasing power due to higher rates of inflation than the net return on these savings instruments. You’re just getting poorer more slowly. Which leads many to jump to what I call risk-reward investments – marketable securities, such as stocks, bonds, gold, traded real estate trusts, mutual funds, etc.

This kind of investing certainly gives you the opportunity to create enough long-term growth to beat inflation. However, there can be wild, cyclical swings in the market (as we saw in 2000 through 2002, and again in 2008). The markets are up right now, but if we go into another market correction, these investors are going to be in the precarious situation of potentially losing a significant portion of their savings.

Balancing risk and reward

But there is a middle-ground financial vehicle, where you can mitigate risk and still come out OK. For instance, fixed index annuities can provide protection of your principal from market volatility while still allowing for potential gains based on market performance.

If you build your portfolio on a solid foundation of safe and liquid assets, a firm middle ground of these linked assets and a percentage of risk/reward investments that is based on the rule of 100 (100 minus your age), you should have a retirement income plan that can help you work toward your retirement goals.

The point is to focus on your retirement income, not just your net worth. If you’re only looking at your statement balances, you could be missing a big part of the picture. It doesn’t matter how much you have saved on any given day – it only counts if you’ll have that money when you need it.

Think of your financial professional as a Sherpa. You need someone to get you up the retirement mountain – accumulating money. But you’ll also need help during the preservation and distribution phase of your journey that is just as important.

A trusted financial professional can help get you there.

Kim Franke-Folstad contributed to this article

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