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How To Protect Retirement Savings

Updated: Nov 6, 2023

When we speak with Pittsburgh clients about their retirement and investment portfolio, the common goal they have is to not lose money, and to preserve their wealth. Almost everyone has heard the most important rule of investing....

Rule #1 Never lose money

Rule #2 Never forget rule number one

Successful investing long term comes down to managing risk. Investing tends to be emotional for people, but this is not how you properly manage money. If there isn't a plan in place for your savings, it becomes very tempting to try to buy and sell based off headlines in the news and the short term swings in the stock market. This unfortunately, is one way to ensure failure long term.

In retirement, there's a fine line between being too conservative which allows inflation to deteriorate your savings, and too aggressive and risking a big down year just as you need to tap into those savings for your monthly expenses. We've found a few vehicles that tend to fill this void and may provide protection for investment portfolios.

***Investing requires risk and loss of capital, this is not a solicitation of securities and purely for educational purposes."

1. Treasuries- Treasury bills or T-Bills are short term government debt obligations backed by the Treasury Department. They have a maturity of 1 year or less. These short term securities can provide protection to a portfolio and can be a great place to hold cash until there are interesting investment opportunities to take advantage of.

They can be very attractive in times of higher interest rates where you can receive a satisfactory return without the market risk in equities. This is the first year in a long time we have seen interest rates of 5-5.5.0%. Not bad protection for a portion of the portfolio!

layers of united states treasury bonds

2. Fixed Annuities- This is a type of insurance contract that promises to pay the investor a specific guaranteed interest rate on their contributions to the account. It has a fixed rate and fixed term similar to CDs. These vehicles are backed by the actual insurance carrier and don't have the volatility of the markets. Fixed annuities generally range from 2-7 year terms depending on the carrier. This can be an option to receive a fixed return over a time frame you don't need access to the funds.

3. Puts- Puts are option contracts that give the owner the right, but not the obligation, to sell a certain amount of an underlying security at a set price within a specific period of time. In plain English, this means you can hedge your portfolio by making a bet that the market or a specific security will go down. This is a complex strategy that requires a keen understanding of the stock market and option contracts. Hedge Funds are institutions that specialize in this strategy in attempts to protect portfolios in market down turns.

4. Income Annuity- An income annuity is a financial product designed to provide a guaranteed periodic income stream in exchange for a lump sum investment. This may payout for the remainder of an investor's life, or may be set for a fixed period of time. The investor gives up access to those investment funds, and in exchange has no market volatility, and a reliable fixed income. This can be a satisfactory solution for a portion of retirement savings to create another income stream and hedge against market volatility.

Hand writing income above yellow money clip art

These are all potentially suitable investment strategies for a retirement account. Each individual's situation will differ. It's always important to consider fees, when you need access to the funds, income needs, and expected growth to outpace inflation. It may be tempting to be overly conservative in retirement out of fear. This is generally not the answer as you'll need to live off your savings for decades, and inflation will slowly erode those savings if they aren't growing. Consider some of the options above for a portion of your investments to protect against larger market downturns.

"The most important quality for an investor is temperament, and not intellect"

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