Don’t Let Risk Derail Your Goals

December 1, 2021
Don’t Let Risk Derail Your Goals

Factor Risk Into Your Investment Strategies

When it comes to reaching your goals—retiring early, buying a second home, paying for your child’s college, travel—one factor could derail your asset accumulation and preservation goals like no other—risk. Learn how to navigate five common risks as you work toward achieving your goals.

Strategies to Mitigate Risk

You might primarily think of risk as being too aggressively invested then watching the market take a swift downturn as it did during the height of the pandemic. But it’s so much more than that.

Five Risks to Your Investment Goals

  1. Rising inflation
  2. Taking withdrawals from retirement accounts during a market downturn
  3. Being too conservative with your long-term investing strategy
  4. Unexpected health care costs
  5. Outliving your retirement savings

Inflation Threatens Cash Flow

There’s no doubt rising inflation, initially thought to be transitory, is front and center today. Gas prices have recently surged ($3.49 as of Nov. 15, 2021, vs. $2.18 a year ago).1 The cost of all food is up 4.6% as of September 2021 compared to September 2020.2 And, although wages have been increasing, price increases for goods and services have outpaced compensation growth in 2021, causing “real” compensation to fall. In June 2021, real compensation growth was 0.7%, below December 2019 levels, and 2% below its pre-pandemic trend.3

What can you do to combat inflation? A starting point is to take time at year-end to meet with your wealth advisor to review your asset allocation to ensure you have enough growth investments in your portfolio to help outpace inflation and combat the devaluation of the dollar.

Bad Timing Can Affect Lifetime Savings

As you start to withdraw money from your retirement accounts, you could experience sequence of return risk. This refers to the markets generating a sequence of negative returns over several years at the same time you begin to take withdrawals. This risk may result in you not having enough savings to last throughout your retirement. Should you find yourself in this position, take a closer look at your cash flow and see where you could reduce discretionary spending until the market levels out.

sequence of returns comparison

For illustrative purposes only.

Starting balance for both portfolios: $1.5M. Ending balance at year 25: Portfolio A: $0; Portfolio B: $2,937,954. Average return: 7 percent.

Meet with your wealth advisor to review historical returns and “stress test” your portfolio to factor in different volatility scenarios so you can better prepare a withdrawal strategy in anticipation of potential future market uncertainty. For more on this topic, read our article, “Developing a Balanced Savings Strategy to Minimize Risk.”

Being Too Conservative Can Impact Long-term Savings

As you age and near retirement, your portfolio allocation should become more balanced in terms of including equities for growth and bonds for capital preservation. The danger lies in tilting your portfolio too far to the conservative side. Whether you’ve been spooked by market corrections or just have a low tolerance for risk, you still need a growth component of your portfolio to stay ahead of inflation as mentioned above. Growth doesn’t mean taking unnecessary risks, it just means developing a strategy to balance growth and asset preservation to help ensure you can still reach your goals.

Plan for Unexpected Health Care Costs

The fact of the matter is that when you reach age 65, you have about a 70% chance of needing some type of long-term care services and support in your remaining years. Some may never need long-term care support, but 20% will need it for more than five years.4

The cost of long-term care has risen dramatically over the years. For example, the average cost of a private nursing home room in 2004 was $65,185. In 2020, it was $105,850, representing a total increase of 62.38%.5 For 20% of Americans who will need this level of care for five years, that’s $529,250. It’s a good idea to expect to need some level of care as you age and work with your wealth advisor on the best way to fund it. Some may choose to fund it out of their overall savings, while others may choose to purchase long-term care insurance to defray some of the costs.

Outliving Your Retirement Savings

The worry that you could outlive your retirement savings is a common one. Across generations, most Americans say the nation faces a retirement crisis and plan to take steps to help mitigate the crisis, including working longer and cutting spending now and in retirement.6 Other strategies include making sure you max out your retirement plan contributions and take advantage of catch-up contributions if you’re age 50 or older, as well as delaying receiving Social Security to receive a higher monthly benefit over time.

America facing retirement crisis

Consult With Your Wealth Advisor

As you contemplate these risks to your ability to accumulate and preserve assets, it’s a good idea to meet with your wealth advisor.

At Mariner Wealth Advisors, your wealth team, including your advisor, tax professional, insurance, trust and estate planning professionals, are under one roof. Together they’ll work with you on a wealth plan designed to mitigate risk to help you reach both short- and long-term goals.

Sources:

1U.S. Retail Gas Price

2Food Price Outlook 2021

3Peterson Institute for International Economics

4“How Much Care Will You Need”

5Genworth Cost of Care Trends 2004-2020

6“Generational Views of Retirement”

The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information.

Some services listed in this piece are provided by affiliates of MWA and are subject to additional fees. Additional fees may also apply for tax planning and preparation services.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training.MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.

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