If you’ve been diligent about saving money and building wealth for retirement, you may think you’re home free—that you’ve locked up a secure and comfortable retirement.
But there are still a few pitfalls that could undo your hard work. One to look out for is known as the “retirement red zone.” That’s the five years before and five years after you retire. Significant investment losses during this period can reduce your savings to the point where there is too little time for them to recover. And when you’re drawing on those savings at the same time, the capital base declines further, which in turn makes it even harder to catch up.
A diminished nest egg leaves you with two choices: Either scale back your standard of living in retirement or run the risk of outliving your money. To navigate safely through this risky 10-year period, I often advise clients to consider using an annuity.
An income annuity can provide a guaranteed source of income for a specified time period, be it 10 years or even the rest of your life. Putting a portion of your savings into the right 10-year annuity can provide a predictable “income floor” to cover your needs for that period. That can provide a sense of security and more importantly, can help you get safely through the retirement red zone.
The value of your investment portfolio may go down during this period but income from your annuity means that you will not need to touch it. You will not need to sell your stocks, bonds, or funds to draw income from your investment portfolio. Remember, doing that is dangerous because it shrinks your capital base to the point where you can’t recoup your losses even when the market rebounds.
With annuity income, you can leave your other investments alone, giving them time to recoup losses and protecting the assets you’ll need for later in your retirement.
The five years before and after your retirement are a time to shift away from taking risks and to start focusing on preserving it so that it can help provide lifetime income. And annuities can be a great tool to help you with that transition.
Bear in mind that there are many types of annuities, each with different features, pricing, and quality levels. You’ll want to select very carefully before handing over your hard-earned money. The team at Anderson Retirement Solutions can help you determine your income needs, the right annuity, and the right amount to contribute to that annuity in order to produce an adequate income stream. Don’t hesitate to contact us at 888.473.6931 if you’d like to discuss retirement-income planning further.
