4 Ways to Protect Your Retirement Savings

Retirement savings are a key part of your financial strategy. They provide an income after you stop working, enabling you to live comfortably. To maximize your hard-earned money, it's important to take steps to protect the funds, both now and in the future.

Diversify

Like any other investment, retirement savings come with an inherent level of risk. One way to protect your savings is to diversify. Split your money into different accounts to maximize returns and spread out the risk. That way, if one account is subject to a market crash or other financial situation, you don't lose your entire savings. Since high-risk accounts often come with higher potential for growth, this method also positions you for larger earnings. If you're uncertain, work with a financial planner to devise the best investment strategy for your unique situation.

Reduce Fees

When choosing where invest your retirement savings, it's important to pay attention to fees. Retirement accounts are long-term, so even small fees can chip away at your hard-earned money. Over the course of 35 years, a 1-percent fee can lead to a 25-percent reduction in your total savings. Many funds charge for administration, management and distribution, and these costs can add up. Minimize the hit to your money by working with a financial professional to find the accounts with the lowest fees.

Monitor Distributions

The money in your retirement savings is usually available to you at any time, but that doesn't mean that you can withdraw without sacrifice. Most retirement-specific funds come with fees for distributions that are made before you reach retirement age. According to the IRS, withdrawals made before you reach the age of 59.5 are usually subject to a 10-percent tax penalty. They money is also added to your income for the year, so you must pay taxes on it. Late withdrawals can also cost you — most accounts are subject to minimum distribution requirements as soon as you reach the age of 70.5. If you do not withdraw at that time, the penalties can reach 50 percent.

Protect Your Heirs

Although it's uncomfortable to consider, it's important to set up protections for your retirement savings in the case that you do not live to use them. If you die before retirement age, the accounts and associated taxes transfer to your next of kin. To minimize the hassle and prevent large losses due to excise, income and estate taxes, set up a plan. Work with your lawyer and financial planner to name a beneficiary to avoid probate, and educate your beneficiary about widow's benefits and the requirements of each account to avoid penalties and confusion.

Although it's impossible to protect your retirement savings from all risk, preventative measures can minimize losses. With forethought and planning, you can safeguard your money and enjoy a steady income after retirement.

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