These 4 Things Are a Challenge for Retirement Portfolios. Here’s How to Cope With Them.

Overcome these barriers so you can retire securely.

You’ll often hear that it’s important to build a nice amount of savings for retirement so you don’t wind up overly reliant on Social Security once your career comes to a close. But building a nest egg is easier said than done. Recent data from Nationwide reveals that pre-retirees today are challenged in the course of building their retirement portfolios. Here are some of the biggest issues they face — and how to deal with them.

1. Inflation

Inflation can be a major threat to long-term financial security. If you’re worried about inflation wrecking your retirement, the solution is simple — invest your savings in a manner that’s likely to outpace inflation. For the most part, that means going heavy on stocks, especially when you’re younger and retirement is many years away. In fact, let’s say you were to save and invest $325 a month in your 401(k) or IRA over a 40-year period. With a stock-heavy portfolio, you might easily be looking at an average annual 8% return, which is actually a bit below the stock market’s average. And that would leave you with just over $1 million in savings.

2. Economic recessions

Economic slowdowns have the potential to impact portfolio values. But that doesn’t always happen during a recession. And also, adopting a buy and hold strategy could make it so that a recession doesn’t affect your portfolio in the slightest. Simply pledge to sit tight and ride things out, which should be a fairly easy thing to do if you’re years away from retirement when economic conditions worsen. Even if a recession hits close to retirement, you don’t lose money when your portfolio takes a dive as long as you leave your investments alone. Keep that in mind in case the near-term recession so many experts have been warning of actually comes to be.

3. Stock market volatility

Investing in stocks isn’t for the faint of heart, and volatility can certainly wreak havoc on your portfolio. But again, staying the course and not selling when stock values tumble is a great way to protect your portfolio. You can achieve that same goal by making sure your portfolio is nice and diverse. And one easy way to go about that is by loading up on S&P 500 index funds, which could spare you the time and stress of having to hand-pick dozens of stocks for your portfolio individually.

4. Taxes

Taxes can be a big impediment to growing wealth for retirement. But a good way to avoid them completely is to save in a Roth IRA or 401(k). While contributions to these plans don’t get a tax break, investment gains and withdrawals are tax-free. Building a retirement nest egg takes work, and these challenges don’t make the process any easier. But if you do your best to go heavy on stocks, ride out recessions, diversify, and choose a savings plan with the most tax benefits, you can set yourself up for a secure retirement despite the many hiccups you might encounter along the way.