Saving for retirement? At some point—or points—stocks and bonds will have down turns as you withdraw funds during your golden years. Learn how you can “bear proof” your investments so those dips don’t zap your savings.   

Physicians tell their patients that they need to take preventive measures to stave off diabetes, heart attacks and other avoidable medical conditions. Similarly, physicians should be taking preventive measures to financially plan for the best possible retirement.

Most likely you are investing in 401(k)s and other market-driven investments, but what are you doing to prepare for years when the stock market goes down rather than up?

According to a recent Wall Street Journal article, when savers “are forced to make withdrawals early in retirement from a declining portfolio, there will be fewer shares left over to benefit when the market eventually goes back up.” And this could cause irreparable harm to your retirement accounts. 

If you have maxed out what you can invest in your 401(k) and other retirement plans, it may be worth taking 20 percent of your additional planned investments to create an alternative source of income through a non-correlated asset, which would be an asset not directly tied to the market, says James L. Laughlin, II, senior vice president of marketing for Millennium Brokerage Group, LLC, a strategic marketing partner of AMA Insurance (AMAI).

Diversifying a percentage of your investments into a non-correlated asset, such as life insurance, can help create more options for your income throughout retirement, especially if you live longer than expected. It also could make a difference in how much you are able to leave to your heirs. Take this scenario:

A physician retired at age 65 with $2 million socked away in market-driven accounts. She took $150,000 annually during retirement and had a little more than $900,000 left at the end of 15 years.

Now, if that same physician had invested part of her retirement money in a life insurance policy, not tied to the market, she would have had $3.3 million at the end of those same 15 years, while still taking the $150,000 annually.   

Here’s how this math works:

Over 15 years, let’s assume the market gained an average 11 percent a year (based on historical results from 1973 to 1987). But that’s an average. During the first, second, fifth and ninth years of the physician’s retirement, in this example, the market was down 14.8 percent, 26.5 percent, 7.3 percent and 4.9 percent, respectively.

That means when the physician withdrew her $150,000 during those down years, she needed to sell off more shares of stock to reach that dollar amount than she did in other years, Laughlin explained. That left her with fewer shares of stock when the market went back up.

If over the course of 20 years, the physician had taken $12,000 each year—about 25 percent of what she was investing—and purchased a $500,000 whole life insurance policy, she could have withdrawn money from the policy’s cash value in those down years and left more shares of stock intact within her market-driven account, such as her 401(k). By diversifying her retirement investments, she would have had multiple sources to take money from, depending on market conditions.

Anyone investing for retirement who wants to protect themselves in a market downturn—something that is certain to happen over an extended horizon of retirement—should explore this option, Laughlin said.

“While there isn’t a retirement crystal ball to know exactly what the markets will do in retirement, there are several strategies that a physician can implement to help smooth any potential bumps and extend their retirement runway,” Laughlin said.

For physicians who may not qualify for a life insurance policy, Laughlin said, there may be other strategies and products available to help “bear proof” their retirement savings.

Another strategy for physicians to consider is the order in which they liquidate their assets during retirement. “The sequence can make a world of difference,” Laughlin said. For one couple, the order in which they took their retirement income stream meant the difference between having $7 million and $12 million over the life expectancy of their retirement.

A timely review of your investment and retirement income strategy will help answer questions and raise your chances for a “successful” retirement, Laughlin said.

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