After working hard to build your retirement savings for most of your life, you probably expect those funds to last for your full retirement. That’s why protecting these hard-earned assets is critical, and it becomes especially important in periods of stock market volatility.

The risk: Market volatility eroding your retirement savings

One unpredictable aspect of retirement planning is the timing of the market downturns. If you retire during or shortly before periods of significant market volatility, you could suffer losses just when you need your savings to replace your paycheck.


Market downturns are unpredictable, so as you near retirement, you may want to consider strategies to protect your portfolio while also meeting your ultimate retirement income goals.

Consider this graph, which shows the actual value of a stock portfolio based on the S&P 500 Index starting in 2007. Imagine you retired at the start of 2007 with $500,000 invested in this portfolio and began the common strategy of withdrawing 4% from your portfolio each year as income—just before the stock market suffered a 50% drop over the next one-and-a-half years.

As the illustration shows, by the end of February 2009, your portfolio value would have declined to $249,300. And assuming your 4% annual withdrawals (or “distributions”) were divided into monthly withdrawals based on that value, your income would have dropped from a projected $1,667 per month at the start of retirement to just $831 per month at the low point of this market cycle. That’s a big hit on your income.

A long-term recovery

Unfortunately, the effects of this loss of portfolio value can also take a long time to repair. When money is being withdrawn from your account regularly, it takes longer to make up for the loss of value. Consider:

  • If a similar $500,000 portfolio based on the S&P 500 Index—but all earnings were reinvested and not withdrawn—suffered the same kind of loss, it would have dropped to a value of $271,900 and taken about 24 months to return to the original value of $500,000.
  • But in our original example, you continued to take withdrawals from the portfolio as the account value dropped. Although the market recovered, it would take more than double the time of the original loss—51 months—for your portfolio to return to the original $500,000 because of those ongoing distributions.
The strategy: Managing growth with protection from market downturns

Market downturns are unpredictable, so as you near retirement, you may want to consider strategies to protect your portfolio and while also meeting your ultimate retirement income goals. Options to consider include:

    • Reducing equity exposure by shifting assets away from stocks and into bonds and cash-equivalent investments to help limit the effects of a market downturn. However, reducing equity exposure may make it harder to maintain your purchasing power because equity investments are commonly used to help guard against inflation. An annuity may be an appropriate alternative by providing growth opportunities while protecting your principal.
    • Using an annuity with downside protection options to generate growth in your portfolio and address risk concerns.

These strategies can help address potential market risk in your portfolio as you near or enter retirement. Ask your financial professional about these risks and how you can add both security and growth potential to your retirement savings.

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