Volatility Doesn’t Have to Spell Retirement Planning Trouble

The past year has given investors plenty of reasons to worry about their retirement savings. While fear is an understandable response to the perfect storm of inflation, rising interest rates, bank failures and market volatility, current economic conditions also provide an opportunity for people to step back and ensure they are well-positioned for the future.

Retirement planning is more complex than most people realize, which is why long-term preparation is critical. Yet many people I talk to spend weeks planning vacations but don’t spend more than an hour or two each month thinking about retirement — if they think about it at all.

When the economic environment is constantly shifting, it’s easy for investors to make reactive decisions based on daily ups and downs. However, these short-term decisions can have long-lasting effects that work against a person’s overall financial goals.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

F&G’s third annual Risk Tolerance Tracker (opens in new tab), which surveyed nearly 1,700 American investors, found that 73% are worried about their retirement income compared to the past two years — 61% in 2021 and 60% in 2020. Of the top concerns, 79% of respondents are worried about inflation impacting their retirement, a sentiment that has continued to increase since 2021, when 73% of respondents said the same.

So, what are investors doing? Nearly half (48%) say they are taking action and actively adjusting their retirement plans. This is good news. A solid, well-thought-out plan makes it easier to put emotion aside. But before making any changes, people should first reassess what retirement means to them.

What Does Retirement Look Like for Me?

One of the first questions financial advisers tend to be asked is, “How much do I need to save for retirement?” It’s a question that is impossible to answer without a deep dive into a person’s lifestyle and vision for the future. For example, does the person need to support adult children or elderly parents? How long do people in their family tend to live? Do they have health issues? Is it important for them to leave money for the next generation, or do they plan to spend most or all of what they have? 

All of these things will have a large impact on a person’s “retirement number.”

Does My Portfolio Match My Goals?

Once a person has a vision of what retirement will look like, they should evaluate their portfolio — ideally with a financial adviser — to ensure they have the right products to help them get there. Some may be leaving themselves exposed by taking on too much risk, while others may not be taking enough risk to generate the returns they need.

Often, people say one thing about their risk tolerance and do another. Our survey found that 78% of American investors say they have become more financially risk averse — up from 69% in 2021. Despite this, many investors are relying on volatile investment vehicles such as stocks (41%), with some branching into riskier assets like cryptocurrency (20%).

As people get closer to retirement, their risk tolerance understandably declines. At that stage of life, the risk of a big loss isn’t worth a few extra percentage points of return. Where life insurance can provide peace of mind by ensuring that one’s family is taken care of, eliminating the need for a retiree to worry about if they are spending too much of their children’s inheritance, insurance products like annuities can reduce the level of risk within a retirement portfolio.

Many annuities are protected from market downturns, serve as a hedge against inflation and can come with a duration that matches one’s life expectancy, reducing longevity risk. Annuities can provide a different sort of guarantee — a stream of guaranteed income. As with life insurance, annuities can remove anxiety over spending, as people know they will be getting a check every month for as long as they live.

Despite the benefits these types of products can provide, only 14% of Americans report owning one, underscoring how many investors are not taking advantage of the full range of options available to address these types of inflation or longevity concerns.

How Do I Create a Holistic Plan?

Of course, creating a personalized portfolio is easier said than done. As investors look at products to purchase, they must analyze the pros and cons of each one, as well as how they work together in a diversified plan. 

As mentioned, insured products can help create a more holistic plan alongside traditional investments, and speaking with a financial adviser can help simplify the process. While 45% of American investors say they are willing to explore new financial products, a majority (58%) are not leveraging the skills of an adviser to create a strong portfolio.

By clarifying their vision for the future, exploring an expanded universe of financial products and connecting with an adviser, investors can ensure their portfolios are built to optimize opportunities and protect their downside risk. While the current financial environment can be scary, stepping back from the day-to-day to plan for the long term can help people stay focused on the big picture and sleep better at night.