3. YOUR RISK TOLERANCE 
 
While investing in the market is a risk, it is an effective way to grow assets — particularly for pre-retirees who got a late start to their savings. But how much of your savings should be invested in the market?

 
Calculating your risk tolerance, the degree of variability in investment returns you are willing to withstand, can help you decide. Many factors go into determining your risk tolerance. A financial professional has access to tools that can pinpoint the exact amount of risk that’s appropriate for you. But you can get a rough idea of how much risk should be in your portfolio by asking yourself a few questions.

CHECK - HOW MUCH RISK SHOULD YOU TAKE ON?

How much would you feel comfortable losing if your  investments had a bad year (or series of years)? 
 
How soon do you want to retire?  (The closer you are, the less risk you want to take on.) 
 
No matter what your risk tolerance is today, it likely will change in the future, and you’ll need to rebalance your portfolio (or adjust the amount of investments you have compared to reliable income sources). Reallocating your money often requires reading the fine print. For instance, those in or nearing retirement may want to take funds from their 401(k), which is directly tied to the stock market, to a lower-risk financial product. However, because 401(k)s are tax-deferred, moving them to another type of account could cost you in taxes. A licensed financial professional can work with your tax professional to help ensure your assets are moved as tax efficiently as possible while staying within your risk tolerance.

4. AN INCOME GAP

Could the total assets you calculated in Section 2 cover your expenses from Section 1 if you and your spouse lived to be 80 years old? If you came up short, you have an income gap.
By taking action sooner rather than later, it is certainly possible to build up your nest egg to where you need it to be before you retire. But if you’re anticipating a recession, especially in the time leading up to your retirement or during the early years of your retirement, you may be hesitant to rely too heavily on a healthy stock market. 

If you’re racing to build up your retirement savings but wary of investing a large chunk of your assets in the stock market, there are other options for a portion of your retirement assets. Financial products, like annuities, allow you to create income with less reliance on the stock market.
Annuities are designed to meet long-term needs for retirement income. When you purchase an annuity, you’re purchasing a contract from an insurance company. In exchange for the premium you pay, you receive certain fixed and/or variable interest crediting options that compound interest-tax-deferred until withdrawn.

When you’re ready to receive income, an annuity offers a variety of guaranteed payout options through a process known as “annuitization.”  If you want the potential to earn interest on your premiums — to help catch up on your savings — fixed index annuities could be worth exploring.  The fixed index annuity combines the benefit of tax deferral with the potential for interest based on positive changes of an external index, or a measurement of a section of the stock market, without actual participation in the market.

So, how does it work?  The insurance company uses a crediting method to track the performance of the index during a specified time period. At the end of each time period, the company calculates the indexed interest. If the result is positive, the annuity is credited interest up to a predetermined amount. If the result is negative, nothing happens and the annuity’s value doesn’t decline. 
A qualified financial professional, particularly one who is independent and has access to a wide selection of annuities, can help you find an FIA that can help you create a source of income for as long as you live, even in a recession.