I’m a financial planner, and I always recommend the same strategy to recession-proof your retirement


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  • If you have decades before retirement, you don’t have to worry much about the market dropping.
  • But if you’re nearing your golden years, a fixed-index annuity is worth considering.

If your retirement is decades away, you have time to build your savings back up before you need to start withdrawing the money. But what if your golden years are right around the corner?

Investment volatility typically goes hand-in-hand with a recession. Watching your investments slide into the red can be a stressful experience for anyone, especially for the money you’re setting aside for long-term goals like retirement.

As a financial planner, I encourage a proactive approach to recession-proofing your retirement, including switching the bulk of your portfolio to safer investments with consistent rates of return. One great option? Fixed-index annuities.

How annuities work

Annuities, a product offered by life insurance companies, are often used as a way to get steady income throughout retirement. In exchange for a lump-sum payment or series of payments over time, the insurance company will pay you back in a steady stream of monthly payments over a set amount of time.

Money inside an annuity is tax-deferred, like a 401(k), which means you won’t pay taxes until you withdraw. Annuities also pay a guaranteed income, making them appealing to retirees.

The most common and straightforward type of annuity is the fixed annuity. Fixed annuities provide a guaranteed rate of return that’s pre-determined when you sign up. No matter what the stock market or inflation does, you’ll get that return. But if you’re looking to get a bit more return on your money without worrying about losing it to the stock market, you may want to look at fixed-index annuities.

How fixed-index annuities fight inflation and why they make sense during a recession

Fixed-index annuities don’t pay a set rate of return. Instead, their interest rates are tied to the overall stock market, like the S&P 500. When the market rises, your annuity’s rate of return rises. If the market falls, you’ll receive a minimum fixed rate of return or no rate of return, and your money will stay the same.

The interest rates for these annuities would drop when the market drops, but you wouldn’t ever lose any of your original investment (unlike the stock market). In other words, the lowest rate you can get on your annuity in a given year is 0%, instead of negative.

These annuities often pay more interest over time, as the stock market historically rises over time. This allows you to lock in your gains and prevents you from losing money. Fixed-index annuities can be a hedge against inflation and market volatility, and guarantee you won’t run out of money in old age.

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Doing your research is important

The biggest draw to annuities is that they aren’t swayed by political or economic turbulence — like a regular paycheck, you can expect your annuity payment to stay the same (or, in the case of index annuities, to increase) no matter what.

But that’s not to say annuities don’t come without some trade-offs. Most insurance companies will charge a fee in exchange for the guaranteed rate, which makes annuities more expensive than other types of investments.

Other ways to recession-proof your retirement plan if you’re nearing retirement age

In addition to moving your investments to an annuity, here are some other ways to make your nest egg as recession-proof as possible:

  • Make sure you have a mix of different types of investments. Having a diversified portfolio can help you minimize your losses during a volatile market.
  • Consider moving some of your investments out away from stocks and into more conservative investments, like bonds and cash equivalents. They’ll be much less likely to lose value if the stock market keeps dropping.

Handling your retirement earnings during a downturn can be stressful, but knowing you have options can empower you to do what’s best for your money.

This article was originally published in July 2022.


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