6 Key Ways to Plan for Financial Success in 2026 (and Avoid a Portfolio 'Death Spiral')

Last year was eventful for financial markets. Stocks (despite a deep dive in the spring) and bonds performed quite well as interest rates dropped.

Will the boom times continue in 2026? Perhaps, but no one has a crystal ball. What is certain is that financial markets, especially stocks, don't go up forever.

The reckoning will come, but no one knows when it will happen, and if you're not properly positioned, it can be terrifying.

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If you're overly invested in stocks and must take systematic withdrawals in retirement when the market is down, it can send your portfolio into a nosedive, perhaps even a "death spiral."

The beginning of the year is a great time to make sure your savings and investments are aligned with your goals, are tax-efficient and don't expose you to excessive risk.

Here are six key steps.

1. Figure out how much income you'll need in retirement

This becomes especially germane in your 50s and 60s. Many people can calculate it using a retirement calculator on the web. Searching for "retirement income calculator" will give you several choices.

If you don't feel comfortable doing this, consider hiring a qualified financial planner who can give you an unbiased figure.

Once you've got an estimate, you can start structuring your savings and investments to produce the necessary income. While savings accounts and stocks can produce income, the income stream they produce varies.

Only three things can offer a guaranteed lifetime income: a traditional employer-provided pension (which is rarer now), Social Security and a lifetime income annuity.

The latter allows you to create your own pension by converting a portion of your savings to a stream of guaranteed income. It serves as longevity insurance.

2. Estimate your 2025 federal and state income taxes and look for savings opportunities

The tax law changed last year, so your federal tax bill might be lower than previously. Nevertheless, if you're holding all or most of your savings in taxable accounts, you have an opportunity to reduce your taxable income by moving some money to tax-free and/or tax-deferred accounts.

Contributing to tax-deferred retirement accounts, such as a 401(k) or a traditional IRA, or to a tax-free Roth IRA, is the first line of defense. If you can afford to set aside additional money for the long term, consider also purchasing a deferred annuity.

Annuity interest is not taxed as long as it's reinvested in the annuity and not withdrawn. Since withdrawals of annuity interest before age 59½ are normally penalized by the IRS, most people don't consider annuities until they're in their 50s.

Deferred annuities come in several flavors. Fixed-rate deferred annuities act much like a tax-deferred version of a certificate of deposit (CD), but they're issued by insurance companies rather than banks and aren't covered by the FDIC.

Fixed-indexed annuities provide market-based growth potential plus guaranteed principal, and variable annuities let you participate in the stock and bond markets but put your principal at risk.

3. Check your asset allocation and rebalance if necessary

An asset allocation plan means that you set the percentages you put in equities (stocks or stock funds) and in fixed income, which includes savings accounts, money markets, CDs, bonds and fixed-rate annuities.

If you're overinvested in one area, such as equities, because of the rise in the stock market, you should rebalance to achieve your desired asset allocation.

Let's say you decided to keep 55% in equities and 45% in fixed income a few years ago. Thanks to a booming stock market, your allocation now stands at 65/35. It's time to consider rebalancing to bring it back to 55/45 again.

A separate issue is that as you approach retirement, your optimal asset allocation might change, with less money in stocks and more in guaranteed safe investments.

Once you're retired and begin withdrawing your savings and need income to replace your wages, you'll likely want to become even more conservative.

Sticking to your asset allocation decreases excessive risk and prevents you from buying high and selling low. When the stock market falls, you'll be less tempted to sell everything because you'll also have a solid cushion of fixed assets.

Many people without a plan panic and sell their stock funds at exactly the wrong time, when the market is at a low point.

You'll also be able to resist overinvesting in the stock market when it's reaching new highs. When there's a strong bull market, it's easy to forget that what goes up will come down eventually.

The right asset allocation is individual. Besides your age and expected income in retirement, your psychology is important. Some people are risk-averse; some don't mind the ups and downs of the stock market too much.

4. Compare alternatives for safe, reliable income

When re-investing money from maturing certificates of deposit or bonds, don't automatically re-up. You might get a better rate elsewhere. Money market accounts, bank certificates of deposit and bonds now pay reasonable rates, but you might be able to do better.

Bond funds are liquid, diversified and easy to buy. However, you can lose money in them. If rates spike after you buy a fund, the value will decline. If rates decline, the share price will increase. Long-term bond funds can be especially volatile.

Many people who choose bank CDs by default can get a higher rate with a fixed-rate annuity. Also known as a multi-year guarantee annuity (MYGA) or a CD-type annuity, it acts much like a bank certificate of deposit.

As with a CD, it pays a guaranteed interest rate for a set period, usually two to 10 years. Unlike CD interest, annuity interest is tax-deferred until withdrawn.

Both principal and interest are fully guaranteed by the issuing insurance company. Although state regulators monitor the financial strength of insurers, they're not covered by deposit insurance, so it's wise to check the insurer's AM Best financial rating.

Fixed annuities let you reinvest interest earnings without risk because reinvested proceeds earn the same rate as the base annuity, guaranteeing the yield for the term.

Deferred annuities are tax-deferred. All interest earnings left inside them compound tax-deferred until withdrawn. You can wait until retirement, when your tax bracket is likely to be lower, to start taking withdrawals.

MYGAs do have less unpenalized liquidity than bond funds. You can always cash them in, but you might pay a fee for an early surrender. Because annuities are less liquid than bond funds, you probably wouldn't want to put all your fixed-income investments into them.

But there is typically some liquidity. Many fixed annuities let you withdraw up to 10% a year penalty-free. They're more liquid than most CDs, which often have penalties for early withdrawals of any amount.

5. Consider a lifetime annuity to create your own pension

With a lifetime income annuity, you pay an insurance company a lump sum, which it converts into a stream of income guaranteed for life. You're creating your own private pension. You can choose either immediate payments (immediate annuity) or defer them until a future date you choose (deferred income annuity).

If you're married, you can choose an option that will protect your spouse. With the joint-life option on a lifetime annuity, payments will continue as long as one spouse is alive.

I'm a big advocate of lifetime annuities, but anyone considering one should realize that you no longer have access to your principal once you commit.

However, if you can afford to tie up some of your savings, they can be a great option.

6. Make sure your beneficiaries are up to date

The listed beneficiaries on annuities, life insurance policies and retirement plans will receive the proceeds on your death, regardless of what your will says.

Marriage, divorce, the birth of children or grandchildren and the death of a loved one may require updating your beneficiaries.

If you're married, your spouse is normally your primary beneficiary, and your child or children are contingent beneficiaries. But if you've been divorced and remarried and your ex-spouse is still listed as the beneficiary, the proceeds will go to him or her.

There's never a bad time to review your finances and investments, but the early part of the year is an especially good time to do it because you'll have the data from the previous tax year to help guide you.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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