Evaluating Your Risk
Most people approaching retirement or that are already retired, are normally more conservative in their retirement planning choices. As you prepare to live off of your life savings, risk can be something you don’t want to worry about in your retirement plan. Understanding the type of risk you take will help you to make informed choices. In retirement, many people want guarantees, no market fluctuation, protection of principal,sufficient liquidity, and tax reduction. The following are the different types of risks you can take with your assets:
Low Risk Accounts
With these accounts, your principal is protected all of the time. Four types of low risk accounts are CDs, Money Market, Savings, and Fixed Annuities. Guarantees associated with fixed annuities are based on the claims paying ability of the insurance company.
Moderate Risk Accounts
These types of accounts have no guarantee of principal and their value will go up and down according to market fluctuation. Medium risk accounts are generally best suited for people who have strong risk tolerance and can handle swings in the market.
High Risk Accounts
This category is generally best suited for people who enjoy the bigger swings in the market and have the time to overcome potential loss. In retirement, when people are living off of their life savings, most people tend to have a majority of their assets in lower risk accounts. Most retirees cannot afford a 30%-50% loss of their retirement assets, which can happen with market fluctuations. Consistent growth is important to a sound retirement plan.