How can you Avoid Your Savings Losing Value?
We saw the good ways to save for your retirement. Now, how can you protect your savings so that they do not lose too much value because your investments have performed poorly?
Investments
When a portion of your savings is invested in the stock market, for example in mutual funds or exchange-traded funds, it may be subject to significant fluctuations.
For example, $100 000 could suddenly drop to $80 000. Although this can be stressful, it is not really a problem when you have a lot of time ahead of you. Usually, the value of your savings increases over time. Therefore, you will likely regain that $100 000 or even more.
However, when you need your savings in the short term to have retirement income, it is very important to have a
diversified investment strategy.
For example, you could have a mix of low-risk investments to cover your needs in the early years of retirement, such as bonds, and other riskier investments that yield higher returns. All the while respecting your investor profile and protecting your investments against inflation in the long term, that is, by aiming for a return that is higher than the increase in the cost of living. For example, you can choose investments that would yield 3% when inflation is 2% for a given year.
Pensions
Certain retirement pensions are guaranteed, like public pensions and pensions under certain workplace pension plans. This means that they will not decrease, regardless of the returns generated by the plan's investments.
Keep in mind that the older we get, the harder it is to manage our investments. A good option might be to convert part of your savings into a life annuity to make things easier for you. It is a pension guaranteed for life that you can buy from an insurance company, for example. Its price depends on various factors, such as your sex and your age. In exchange, you receive payments of a regular amount until your death.
For more information on the annuities, consult the following web pages: