During your accumulation years, you may have categorized your risk as \u201cconservative,\u201d \u201cmoderate,\u201d or \u201caggressive\u201d and that guided how your portfolio was built. Maybe you concerned yourself with finding the \u201cbest-performing funds,\u201d even though you knew past performance does not guarantee future results.<\/p>\n
What occurs with many retirees is a change in mindset\u2014it\u2019s less about finding the \u201cbest-performing fund\u201d and more about consistent performance. It may be less about a risk continuum\u2014that stretches from conservative to aggressive\u2014and more about balancing the objectives of maximizing your income and\u00a0sustaining it for a lifetime.<\/p>\n
You may even find yourself willing to forego return potential for steady income.<\/p>\n
A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.<\/p>\n
Let\u2019s examine how this might look at an individual level.<\/p>\n
During your working years, you understood\u00a0the short-term volatility of the stock market but accepted it for its growth potential over longer time periods. You\u2019re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.\u00b9<\/p>\n
But you\u2019ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it\u2019s not so much about managing your exposure to stocks, but considering new strategies that adapt to this new landscape.\u00b9<\/p>\n
For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.<\/p>\n
The guarantees of an annuity contract depend on the issuing company\u2019s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59\u00bd, a 10% federal income tax penalty may apply (unless an exception applies).<\/p>\n
The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.<\/p>\n<\/div><\/div><\/div><\/div><\/div>