• 5-Minute Article
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  • Sep 26, 2018

Make the Most of a Retirement Investment Plan: Stay the Course

Following a retirement investment plan through the market’s ups and downs can help you reach your goals. Here are tips for adapting your plan — and your behavior — for the long term.

A well-diversified retirement investment plan is a roadmap to your retirement goals. While you may make occasional adjustments along the way, sticking to that plan for the long haul is critical to reaching your destination on time.

Market volatility is common over long periods, which is why investment diversification is a key part of a retirement investment strategy. However, the experience of short-term market volatility can still be unsettling when saving for retirement, sometimes influencing people to move money out of carefully chosen investments in reaction to market changes. Yet investment researchers have found that those who maintain a long-term perspective — even in the face of short-term market movements — are more likely to fully realize the benefits of their retirement investment plan.

Working closely with a financial advisor can help reduce anxiety during market volatility. Advisors can provide emotional support, such as offering historic context for recent performance and highlighting the progress you’ve made toward your goals. Advisors also can help adapt retirement investment plans with tools and strategies that make it easier to stay invested for the long term. In particular, adding a variable annuity with an optional guaranteed living benefit rider to a well-diversified plan can provide several advantages, including expanding the mix of products used to build savings and offering another source of guaranteed lifetime income.

The Impact of Straying from a Retirement Investment Plan

Strong emotions about money and investing are rooted in human nature. Researchers have found that “behavioral biases” can affect people’s financial decision-making. For example, “recency bias” is a tendency to pay more attention to recent events and experiences than those that happened in the past.

This bias can cause some people to get nervous and sell stock investments when markets are down. Then, when markets start to recover, many of those same people decide that it’s time to invest again. But waiting until the stocks are on the upswing can mean missing out on potential gains.

In fact, missing just the 10 best days of the S&P 500’s performance during the 20 years between 1998 and 2017 would have reduced the growth of a $10,000 investment by nearly 50%, according to investment manager Legg Mason1.

The Power of Staying Invested

Growth of a $10,000 investment in the S&P 500 Index from January 2, 1998–December 31, 2017.

The Power of Staying Invested

How Variable Annuities Help Address Market Volatility

Variable annuities are tools that can help with investment diversification when saving for retirement. These products, which combine features of insurance and investments, offer several benefits that can reduce impact of market volatility — including optional guaranteed living benefit riders that provide guaranteed income for life. The table below describes some of these features and benefits.

Key Features of Variable Annuities with Optional Guaranteed Living Benefit Riders

Guaranteed income for life
Annuity owners can select a withdrawal rate that provides an income payment for as long as they live. This adds a measure of protection for a potentially long retirement over relying solely on savings in traditional investment vehicles that may be depleted through a combination of withdrawals and poor market performance.

Diversified investment options to help grow income payments
Annuity purchase payments can be invested in a broad range of asset classes. Advisors can create diversified portfolios that offer growth potential and help reduce risk, providing an opportunity to increase future income payments above the guaranteed baseline amount.

These features help complement investment diversification in a retirement investment plan and can make it easier to stick with that plan for the long term. For example, moving a portion of retirement assets into a variable annuity can help with a “bucketed” savings strategy that addresses near- and longer-term income needs. In this strategy, guaranteed income from an annuity in a near-term bucket can help cover income needs early in retirement, while another bucket of savings outside of an annuity can be invested in growth-oriented assets to provide additional income for expenses that come later in retirement. Knowing that your near-term retirement income needs are covered may help you feel more confident riding out market fluctuations that affect the value of savings in a long-term savings bucket.

Creating an additional source of guaranteed lifetime income also can reduce common retirement concerns about longevity and market volatility. Increased income security can make it easier to manage emotions during the market’s ups and downs than if you are relying solely on a portfolio that’s fully exposed to market fluctuations to cover retirement expenses.

Note that annuity contracts and optional features come with fees and charges, so it’s important to understand these costs when considering a potential role for variable annuities in a retirement investment plan.

The Value of Working with an Advisor

Developing a savings and investment plan is an important part of pursuing passions and retirement goals, but working with a financial advisor can help you make the most of that plan. Consider asking your advisor the following questions to help you stay on track:

Questions to ask an advisor
  • Are my savings and investments appropriately diversified to provide the right balance between growth potential and risk management for my goals?
  • Does my retirement plan need additional protection against market downturns?
  • How can you help me stay focused on my long-term goals even as the markets move up and down in the short term?
  • Are there gaps between my potential retirement expenses and my sources of guaranteed income?
  • What are the fees associated with variable annuities, and how can I determine the value I’ll receive in exchange for paying them?

Learn more about strengthening a retirement plan by reading “Can I Afford the Retirement I Want?”.