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As investors, we often focus on the potential rewards of our investments, but it's equally important to understand and mitigate the risks that can impact our financial security. Three significant risks that retirees and investors face are inflation risk, sequence of returns risk, and the risk of longevity. Here’s a closer look at each of these risks and how partnering with a wealth manager may help you manage them effectively:
1. Inflation Risk
Inflation risk refers to the potential for the purchasing power of your money to decline over time due to rising prices. Inflation erodes the buying power of your savings and income, making it an important topic that we believe should be covered in your retirement and financial planning.
Managing Inflation Risk with a Wealth Manager:
- Diversification: At PCA, we can create diversified portfolios that include assets with growth potential, such as stocks and real estate investment trusts (REITs).
- Inflation-Linked Investments: We can recommend inflation-protected securities like Treasury Inflation-Protected Securities (TIPS) or inflation-linked bonds, which adjust their principal value based on changes in inflation.
- Regular Review and Adjustment: We monitor your portfolio regularly and make adjustments to asset allocation and investment strategies to ensure they remain aligned with your inflation protection goals.
2. Sequence of Returns Risk
Sequence of returns risk refers to the risk of experiencing negative investment returns early in retirement or during a period when withdrawals are made from your portfolio. This can significantly impact the longevity of your savings, as withdrawals during a downturn can deplete your portfolio faster than anticipated.
Managing Sequence of Returns Risk with a Wealth Manager:
- Asset Allocation Strategies: At PCA, we tailor asset allocation strategies that consider your retirement timeline and cash flow needs. We may allocate a portion of your portfolio to more conservative investments to mitigate the impact of market volatility on withdrawals.
- Withdrawal Strategies: We develop tax-efficient withdrawal strategies that aim to minimize the impact of market downturns, such as using a combination of income-producing investments and rebalancing techniques.
- Risk Tolerance Assessment: We regularly assess your risk tolerance and adjust investment strategies accordingly to ensure they are aligned with your financial goals and comfort level.
3. Risk of Longevity
The risk of longevity refers to the possibility of outliving your retirement savings. With increasing life expectancy, retirees face the challenge of ensuring their savings last throughout their lifetime.
Managing Risk of Longevity with a Wealth Manager:
- Long-Term Financial Planning: At PCA, we develop comprehensive retirement income plans that account for your expected lifespan and financial needs in retirement.
- Annuities and Guaranteed Income: We can recommend fee-based (no commission) annuities or other guaranteed income products that provide regular payments throughout your lifetime, offering protection against the risk of outliving your savings.
- Healthcare and Long-Term Care Planning: We integrate healthcare and long-term care costs into your financial plan, so you can be prepared for potential future expenses that could impact your retirement savings.
Why Partner with a Wealth Manager?
Wealth managers may bring specialized knowledge and a disciplined approach to managing investment risks. We believe we offer:
- Personalized Guidance: Working closely with you to understand your financial goals, risk tolerance, and unique circumstances, crafting customized strategies that address your specific needs.
- Proactive Monitoring: Monitoring your investments regularly, making adjustments as needed to respond to changing market conditions and ensure your portfolio remains aligned with your goals.
- Behavioral Coaching: Providing behavioral coaching to help you stay focused on your long-term objectives and avoid emotional decision-making during market volatility.
Partnering with a wealth manager can provide the guidance, strategies, and confidence for your financial future. Contact us today to learn more about how our wealth managers can help you navigate these risks and pursue your retirement goals with confidence.
Related: Fee-Based Buffered Annuities: A Blend of Market Participation and Downside Protection