Retirement Planning: How to Protect Your Money in a High-Risk Environment

When you’re approaching retirement, one of the most critical decisions you'll face is putting your money in the right places to ensure it continues working for you. You can’t afford to remain in a high-risk environment once you reach retirement. Sure, some people try to stay invested in risky markets, but now you’re dealing with withdrawing funds and potentially losing money at the same time. This is known as the sequence of return risk, and it's something that must be considered.

These aren't hypothetical scenarios. They’re real situations retirees face, especially when their savings are tied up in qualified plans like 401(k)s and IRAs. These are accounts where taxes are deferred until you start taking distributions in retirement. Without a proper strategy for how your money will be distributed, you could find yourself struggling to make ends meet.

You Can’t Rewind Time, So Plan Wisely

One of the challenges retirees face is that they can’t rewind time and go back to change how they saved or where they put their money. Many people have accumulated most of their wealth in qualified accounts like 401(k)s or IRAs, and when retirement nears, it really comes down to the wire. As people live longer, inflation forces many to work until they’re 69, 70, or even 74.

There's even debate within the government about raising the retirement age. Originally, when Social Security was created, people were expected to live until around 68 or 69. That’s why full benefits were available at 66. Now, people are living longer, and the government is paying out more. One way they’re considering saving money is by pushing back the age for full Social Security benefits, potentially to 70, 72, or even 73.

The Importance of Timing and Strategy

For now, you can still claim Social Security at 62, but your benefits are reduced. While there are pros and cons to claiming early, it's important to think ahead. Waiting until the current full retirement age of 66 and some months will provide maximum benefits, but discussions are underway to extend that age even further.

When planning for retirement, it’s essential to know how and where your money is working for you. Without the right strategy, you could end up taking distributions at a time when market conditions are not in your favor, which could significantly impact your long-term financial stability.