Retiring in Risky Times Requires Protection from a Volatile Market and Interest Rates – Kiplinger’s Personal Finance

We’re starting to hear that ugly “r” word again – recession. It’s not officially here yet, and hopefully it won’t happen, but the possibility is permeating the media.

For those hoping to retire soon, or those who recently did, the word “recession” can cause apprehension. While we aren’t in a 2008-like meltdown situation, when the global financial crisis pushed the U.S. into recession, we deal with numerous negative factors that affect our economy and many retirement plans. These include rising inflation, rising interest rates to combat inflation, a global pandemic that won’t go away, Russia’s invasion of Ukraine, and the likelihood of higher taxes down the road.

Back in 2008, people near retirement had to make financial adjustments to secure the fixed income they would depend on. Now the scenario is similar as another wave of retirees face concerns about safeguarding their finances.

But fear not: Retiring in a recession or in economic times that cause concern on many fronts can be done. If you’re planning to retire soon or you’re in the early stages of retirement, here are some key points to consider and options to protect your money:

2 Ways to Protect Yourself from Market Risk in Retirement

An indexing strategy can help you counter your risk during a stock market downturn. The idea is to put some of your money in accounts not affected by a market decline and draw from those accounts in your first few years of retirement. Two vehicles that reduce market risk are indexed universal life insurance (IUL) and a fixed index annuity.

Indexed universal life is a type of permanent life insurance with a cash-value component and a death benefit that your beneficiaries will receive tax-free. The money in your cash-value account can earn interest based on the performance of a stock market index chosen by your insurer, such as the S&P 500 or the Nasdaq Composite. But unlike investing directly in an index fund, you won’t lose money when the market falls. That’s because a guarantee applies to your principal, insuring it against losses.

The catch is there’s usually a cap on the maximum return you can earn. Also, IUL policies can come with numerous fees and other costs. On the positive side, IULs have unlimited contributions, tax-free growth and tax-free distributions.

Fixed index annuities also offer growth potential while protecting your principal from market volatility. Potential for additional interest is linked to the return of a market index, such as the S&P 500. The interest rate is guaranteed to never be less than zero, even if the market index goes …….


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