How Do I Protect My Retirement Savings from a Crash?

Protecting your retirement savings from a crash does not require predicting when the next crash will happen.

It requires deciding which portion of your money should remain exposed to market risk and which portion should be contractually protected.

That distinction becomes increasingly important as retirement approaches.

You may still need market growth, but you may also need guarantees.

Key Takeaways

• No one knows exactly when the next market crash will happen.
• Fixed annuities can protect principal from market losses according to the contract.
• MYGAs provide principal protection and a guaranteed interest rate.
• Lifetime income can reduce dependence on selling investments during market declines.
• Market growth and contractual guarantees should be treated as different parts of a retirement plan.
• Fear should not determine which annuity you purchase.

Separate Growth From Guarantees

A retirement portfolio can have more than one job.

Part of your money may be positioned for market growth.

Another part may be positioned for contractual guarantees.

Trying to make one financial product provide both unrestricted market growth and complete market protection can create unrealistic expectations.

Decide Which Money Cannot Be Lost

Start by identifying the money you absolutely do not want exposed to a market decline.

That may include:

• money needed for near-term retirement expenses
• money designated for principal protection
• funds supporting your income floor
• assets you simply do not want exposed to market volatility

Once you know that amount, you can compare appropriate fixed alternatives.

MYGAs Can Protect Principal

A Multi-Year Guarantee Annuity provides a guaranteed interest rate for a specified period.

That means you know the contractual rate and contract term when you purchase it.

For someone who wants principal protection and a known return, that can be much more straightforward than relying on hypothetical indexed returns.

Fixed Annuities Are Not the Only Safe Option

Other conservative choices can include CDs, Treasury securities, and money markets.

Annuities are one tool.

They should be compared with other appropriate alternatives based on:

• guarantees
• liquidity
• duration
• taxes
• financial strength

The goal is not to force every conservative dollar into an annuity.

Crash Protection Is Also About Income

A market crash becomes especially difficult in retirement when you need to withdraw money from investments while account values are down.

That can force you to sell assets at an unfavorable time.

One way to reduce that risk is to create dependable income that does not require selling investments every month.

Lifetime Annuities Can Provide That Income

Annuities can contractually provide lifetime income.

That income can come from:

• Immediate Annuities
• Deferred Income Annuities
• QLACs
• Income Riders

The payment continues according to the contract rather than depending on whether the market is having a good month.

Social Security Is Part of the Income Floor

You may already have lifetime income through Social Security.

If you have a pension, that provides another dependable source.

Add those together and determine whether they cover the expenses you want guaranteed.

If not, an annuity may potentially fill the remaining gap.

Why an Income Floor Matters During a Crash

Suppose the stock market falls sharply.

If your essential monthly expenses are already covered by Social Security, pensions, and annuity income, you may not need to sell investments simply to pay the bills.

That can give your market assets more time to recover.

Beware of Fear-Based Marketing

The phrase "market crash" gets attention.

That makes it useful in advertising.

Do not allow someone to convince you that you need a particular annuity simply because a crash is supposedly imminent.

Nobody knows the exact timing.

Evaluate the contractual guarantee instead.

Watch Out for Too-Good-to-Be-True Claims

Be cautious with pitches combining:

• upfront bonuses
• market upside with no downside
• free long-term care
• unusually high guaranteed income
• crash protection

One contract does not magically provide every benefit without trade-offs.

Review what is actually guaranteed.

An Income Rider Is Not an 8% Investment Return

Income Riders may show a percentage used to grow a benefit value for calculating future lifetime income.

That should not be confused with an investment yield or cash return.

The benefit value is used to determine the contractual income.

It is not necessarily money you can withdraw as cash.

How Much Should You Protect?

There is no universal percentage.

Determine how much of your money needs to be safe based on:

• retirement expenses
• income needs
• liquidity
• other guaranteed income
• market risk tolerance

Then protect the amount necessary to solve those specific needs.

Do Not Abandon Growth Completely

Principal protection is valuable, but retirement may last decades.

Market-based investments can still play an important role in long-term growth.

The objective is balance.

Put the guarantees in place that you need, then decide how much remaining money should continue pursuing growth.

Where to Compare Fixed Annuities

Use our annuity calculators to compare current contractual guarantees from multiple insurance companies.

For principal protection, compare MYGA rates and terms. For lifetime income, compare current contractual payouts.

The Bottom Line

Protecting retirement savings from a crash is not about guessing the exact day the market will fall.

It is about deciding which assets should be exposed to growth and which should be protected contractually.

MYGAs can provide principal protection and guaranteed interest. Lifetime annuities can create dependable income that reduces the need to sell investments during difficult markets.

Build the guarantees you need and let the rest of the portfolio do its own job.

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