What You Need to Know Before Trusting Your Retirement to the Stock Market
Scenario
You’re contributing to a 401(k), and you’re wondering if your hard-earned savings are in jeopardy. With market downturns, inflation, and conflicting financial advice everywhere, it’s natural to question how risky a 401(k) really is—and what alternatives exist if you’re looking for more certainty.
1. Market Exposure Makes 401(k)s Inherently Risky
Key stat: The S&P 500 lost over 18% in 2022.
401(k)s are invested in mutual funds that track the stock and bond markets. When the market dips, so does your balance. You carry the full risk of losses with no guarantees.
✔ High growth potential during bull markets
✘ No downside protection—your savings can lose value
Who Needs It:
Those with long time horizons (20+ years) and high risk tolerance.
Who Doesn’t:
Near-retirees or risk-averse savers who can’t afford a market crash.
2. Default Options Often Underperform or Misalign With Goals
Key stat: 92% of plans default to target-date funds.
Target-date funds assume a “one-size-fits-all” approach that may not match your actual retirement needs or market risk profile. You could be over- or under-exposed.
✔ Hands-off investing
✘ May not reflect your risk tolerance or income goals
Who Needs It:
New investors who don’t want to customize their allocation.
Who Doesn’t:
Those who want tailored risk control or guaranteed income.
3. You’re 100% Responsible for Risk Management
Key stat: Only 35% of participants regularly rebalance their 401(k).
Unlike pensions or annuities, 401(k)s offer no built-in guarantees. If you pick the wrong investments, mistime the market, or miscalculate withdrawals, your retirement income suffers.
✔ Full control of your money
✘ No guidance or safety net if you make a mistake
Who Needs It:
DIY investors confident in managing portfolios.
Who Doesn’t:
Those wanting guaranteed lifetime income and professional risk protection.
4. 401(k)s Don’t Guarantee Retirement Income
Key stat: 40% of retirees run the risk of outliving their savings.
Even with a large balance, there’s no guarantee how long your money will last. If the market crashes early in retirement, you could run out of funds sooner.
✔ Potential for large growth
✘ No income floor or payout promise
Who Needs It:
People with backup pensions or Social Security making up most of their income.
Who Doesn’t:
Retirees who need reliable monthly income for life.
5. Better Retirement Income Options Exist—Like Annuities
Key stat: A fixed index annuity with a GLWB can offer 5%–8% guaranteed withdrawal for life, regardless of market performance.
Annuities with Guaranteed Lifetime Withdrawal Benefits (GLWBs) solve the biggest 401(k) problem: no income guarantee. You can roll over your 401(k) into an annuity that protects your principal and pays income for life.
✔ Protects your money from market losses
✔ Pays you for life, even if the annuity runs out of funds
✘ Less liquidity than a brokerage account
Who Needs It:
Those 5–10 years from retirement or currently retired who need stable income.
Who Doesn’t:
Younger savers focused on aggressive growth and willing to ride market swings.
Also Consider
- Term Life Insurance for income replacement if you pass away before retirement
- Long-Term Care Insurance to protect your 401(k) from being drained by health costs
- Annuities with Inflation Riders to preserve your purchasing power
Book A Call
Yes, 401(k) plans carry high risk if you’re not managing them actively or near retirement. Pairing your 401(k) with a fixed indexed annuity can lower your risk, guarantee income, and eliminate guesswork. Contact The Annuity Expert’s financial advisors and insurance agents for a no-obligation call and a free personalized quote today.
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