4 Portfolio Disasters You'll Want To Avoid

4 Portfolio Disasters You'll Want To Avoid

September 21, 2017

We are all too familiar with natural disasters – hurricanes, floods, and wildfires being the most recent. While our physical health is significantly more important than our portfolio, a financial disaster can be incredibly destructive to our life in retirement. The good news is that there are ways to reduce these risks or even avoid them altogether. Here’s a few disaster situations and how you can handle them.

  1. A surviving spouse who has to “learn as they go” in regards to their finances
    Typically, there’s one spouse who handles the finances in every marriage. If that spouse hasn’t included their partner in financial conversations, especially regarding what they have and how they planned on spending it, this can only heighten an already emotionally difficult time for the surviving spouse.

    For those who have planned for retirement carefully, there are complexities involved that need to be explained to their partner, whether they are income products, money in the markets, spending accounts, cash reserves, or anything of the sort. One benefit of having a comprehensive financial plan is to have strategy in place, allowing the surviving spouse to understand the moving parts before they’re a widower/widow.
  1. A stock market crash at the worst possible time
    We don’t have to look too far back in history to see a market crash that wreaked havoc on many retirement plans. In 2008, the market dropped more than 55% in a little less than a year and a half. Many who were about to retire or had recently retired, had to return to work or risk running out of savings part-way through their golden years.

    While market drops this significant don’t happen on a yearly basis, there’s always the very real risk that a downturn will happen at the worst time. There are products, like annuities*, that strive to protect our retirement income from market downturns and provide the benefit of receiving a high level of income.
  1. A nest egg goes to nursing home expenses rather than beneficiaries
    While we see fewer people planning to pass along an inheritance, it remains important for some and vital to others. Beyond money going to the kids, some want their assets to go to a charity, while others have special-needs children, for whom a legacy is vital.

    As many of us know, nursing homes can be incredibly expensive and only continue to increase in price. There are multiple forms of protection that can be leveraged to keep your savings safe for estate plans. One such product is Asset-Based Long-Term Care insurance, which lets an individual pay one large premium and retain the right to get back the money they invested.
  1. A retiree in their 80s is forced to rely on Social Security for income purposes
    We already looked at a scenario where a market crash can force someone to go back to work. But even if they do, there’s still no guarantee that they’ll avoid depleting their savings. At that point, they would be living on just Social Security.

    The potential benefit of an annuity is not just that it strives to provide market protection, but also that it strives to eliminate the risk of outliving your assets due to longevity. Annuities create a stream of income like a pension that will continue regardless of how long one lives – a “custom pension.” We at Kemp Harvest customize them to provide additional protection in the event that someone passes early in retirement.

Unfortunately, there are other risks beyond the ones mentioned here. This is why we like to start planning early in someone’s financial life. There are multiple goals to achieve with many risks tied to each of them. A comprehensive financial plan, at the very least, allows us to see where we are at relative to our goal – as well as ways we might improve it. If you would like to reduce or eliminate your own portfolio disasters, please contact us.

The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual's goals, time horizon, and tolerance for risk.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining value.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges, and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims-paying ability of the issuing insurance company.

*The guarantees are based on the claims-paying ability of the issuer and do not protect against market fluctuation. The guarantee only applies to the death benefit and does not cover the sub-account investments