4 ways to help make your retirement savings last

Key Points

  • Don't rely solely on market returns to grow your retirement savings — contribute as much as possible.
  • Know the impact of big market gains and losses over time.
  • Help your investments work together through correlation.
  • Diversify your portfolio to help mitigate risk.

Today's longer life spans mean you may need to save more to make sure your retirement savings last. These four strategies can help.

1. Contribute as much as possible

The money you put into your retirement account may account for a bulk of your overall savings. That can be a bit of a surprise for investors counting on market returns to fuel their retirement savings.

Example returns on investing 10,000 a year in stocks for 10 years

2. Know the impact of big market gains and losses

Because people often look at market performance year by year, it's easy to get the impression that if you experience more up years over time than down years, you'll come out ahead. But, a closer look shows that the markets don't always work that way.

Look at the years 2000 through 2009, for example. In that decade, the Standard & Poor's 500 index had six positive years and four negative years. But, the losses in the down years were bad enough that total return for the 10-year period was −9.1%.

3. Help your investments work together

Understanding how different investments and markets perform compared to one another can help diversify your portfolio.

Investment experts call it correlation, which basically means how specific investments perform similarly or differently over time relative to each other. For instance, it is generally thought that stocks and U.S. Treasury bonds are negatively correlated over time — meaning when stocks go up, Treasuries go down and vice versa.

Correlations have gotten more complicated and harder to predict. The reason? Major economic events in recent years have affected many asset classes in the same way. In addition, globalization allows for many world markets to move in the same direction. Plus, extreme market volatility can trump correlation. In the downturn of 2008, for example, U.S. and international stocks, corporate bonds and many other asset classes were hit.

4. Diversify your portfolio

You may want to focus on diversifying your portfolio with investments that have potential to withstand a variety of economic conditions, keeping in mind that those conditions can stay in place for several years. You want a portfolio designed to consider times of low inflation and high growth as well as withstand the risks of high inflation or a recession. Stocks, for example, may do well during low inflation and high economic growth while long-term government bonds traditionally hold up during a recession.

Take the next step

Your advisor can help you take economic and market factors into account so you can save for a more confident retirement.