In investing, winning isn’t always about beating the market. Especially in retirement, the families who come out ahead often do so by focusing on a different goal: not losing big when things go wrong. That’s because once you start drawing income from your savings, losses can become far more dangerous than they were during your working years.
In this article, we’ll walk through what market risk really means, how tools like Certificates of Deposit (CDs) and annuities can help protect against that risk, and why sequence of returns may be the most overlooked, and most dangerous, retirement risk of all.
What Is Market Risk?
Market risk is the possibility of your investments losing value due to fluctuations in the market. It can come from a variety of sources. The most common ones are economic downturns, changes in interest rates, political instability, or even unexpected global events.
For long-term investors, market risk is often tolerated in exchange for the potential of higher returns. But for retirees who are drawing income from their portfolios, the stakes are much higher. A downturn early in retirement can have a compounding effect, increasing the chances that you’ll outlive your money.
This is where the old saying rings true: “You don’t have to win, you just have to not lose.”
Understanding Certificates of Deposit (CDs)
A Certificate of Deposit is a savings product offered by banks and credit unions that pays interest on a lump sum for a fixed period. Unlike stocks or mutual funds, CDs are insured and have a guaranteed rate of return, making them a safe and predictable tool for short-term savings goals.
Why CDs Matter for Retirement:
– Principal Protection: CDs are insured up to $250,000 per depositor, per institution, through the FDIC for banks, or the NCUA for credit unions. That means your principal is protected against loss.
– Short-Term Interest Rate Play: CDs allow you to benefit from rising interest rates by locking in new, higher rates for short periods.
– Liquidity: Many retirees value CDs because they often mature in 6 to 24 months, making them more liquid than long-term investments like annuities.
– Market Loss Buffer: If the market is down, having CDs on hand gives you a place to pull income from—without selling stocks at a loss.
According to Investor.gov, CDs are one of the simplest and most secure savings vehicles available to consumers today.
What Is an Annuity?
An annuity is a contract with an insurance company where you contribute money in exchange for guaranteed income payments in the future. There are several types of annuities—fixed, variable, immediate, and indexed—and they all serve different purposes.
For our discussion, we’ll focus on fixed and fixed indexed annuities.
Why Annuities Matter for Retirement:
– Long-Term Interest Rate Play: Annuities allow you to lock in interest rates for the long haul.
– Income Protection: Many annuities can provide income for life, reducing the risk of outliving your savings.
– Principal Protection: With a fixed or fixed indexed annuity, your principal is protected from market losses.
However, in an environment where inflation is high, and interest rates may continue to rise, locking in today’s rates for the long term might not be ideal. Annuities aren’t a golden solution—they’re one tool in the toolbox.
Fixed Indexed Annuities (FIAs): These products offer returns based on the performance of a market index, but without downside risk. They often come with caps, participation rates, and complex terms. Investor.gov provides updated guidance to help ensure that investors understand how they work and what risks are present.
Comparing CDs and Annuities
| Feature | Certificate of Deposit | Annuity ( Fixed or Indexed) |
| Term
|
Short(6-36 months) | Long Term (5-20+ years) |
| Interest Rates
|
Capture Rising Rates | Locks in Current Rates |
| Liquidity | High
(Principle protected if pulled before maturity) |
Low
(Greater early withdrawal Penalties) |
| Risk
|
Short Term Liquidity Risk/Reinvestment Risk | Long Term Liquidity Risk |
| Market Exposure
|
None | Possible Upside (with protection) |
Sequence of Returns Risk: The Silent Killer
Sequence of returns risk comes from the timing of investment returns—especially dangerous in retirement.
– Selling in a down market locks in losses.
– You withdraw more shares to get the same income.
– Those shares can’t recover.
– The damage compounds.
The Schwab Center for Financial Research shows how two retirees with the same average return can end up in very different positions depending on timing.
Putting It All Together
Market risk is inevitable, but it doesn’t have to destroy your retirement.
Combining CDs, annuities, and understanding sequence of returns helps build a resilient retirement plan.
The families we work with don’t just want a bigger portfolio. They want a safer, smarter income strategy. That starts with a plan that protects against market risk, inflation, and sequence of returns.
📍 If you’re five years from retirement or already there, let’s sit down and walk through your options. You only retire once—let’s make sure you get it right.
At Liberty Hill Financial Planners, we help create plans that bring comfort, confidence, and control. We believe that Understanding is the Key to Confidence and that principle is the foundation of every strategy we help build. By knowing your risks and using the right tools, you can take control of your retirement with clarity and peace of mind.
Works Cited
– “Timing Matters: Understanding Sequence of Returns Risk.” Charles Schwab, https://www.schwab.com/learn/story/timing-matters-understanding-sequence-returns-risk.
– “Certificates of Deposit (CDs).” Investor.gov, https://www.investor.gov/introduction-investing/investing-basics/investment-products/certificates-deposit-cds.
– “Updated Investor Bulletin: Indexed Annuities.” Investor.gov, https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-investor-bulletin-indexed-annuities.
Disclaimer
Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. The views, statements and opinions expressed herein are those of the author, and not necessarily of Foundations or their affiliates. The content provided is for educational purposes only and the views reflected are subject to change at any time without notice. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Foundations deems reliable any statistical data or information obtained from third party sources that is included in this article, but in no way guarantees its accuracy or completeness. No investment, legal or tax advice is provided. Always consult with a professional.