David McKnight addresses one of the biggest fears people have as they approach retirement: "What if I retire right into a market crash?".

Not only this represents one of the biggest challenges in retirement planning but it's also one of the reasons why David advocates for protecting yourself from sequence of returns risk.

When it comes to long-term stock market investing, it's important to understand the difference between retirement years and accumulation years.

Sequence of returns is the order in which market returns occur in your portfolio.

That order, David stresses, can make or break your retirement unless you've taken steps to prepare your portfolio ahead of time.

The danger isn't simply that the market goes down, as markets always recover eventually.

The danger is being forced to sell investments while they're down in order to fund your lifestyle.

David touches upon the dot-com collapse and 2008 mortgage meltdown as extraordinarily difficult periods for retirees who only relied on investment portfolios for income.

There are two approaches David recommends adopting.

The first one is to build a guaranteed income floor before retirement – ideally 5-10 years before retiring.

The role of the guaranteed lifetime income is for it to cover essential expenses so that your lifestyle is no longer entirely dependent on the performance of your stock portfolio.

Remember: by living off your guaranteed streams of income you give your portfolio a chance to recover from down years in the stock market.

The second approach is the so-called Volatility Shield strategy, which sees a properly funded cash value life insurance – in the form of Indexed Universal Life (IUL) – play a critical role.

The first step of the Volatility Shield way is to begin funding an IUL well before retirement with 3-5 years of living expenses covered by day one of retirement.

David breaks down the process that can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% success rate.

The Volatility Shield is a strategy that you can begin implementing much earlier than the guaranteed lifetime income one.

You can use guaranteed lifetime income to help cover essential expenses, and an IUL volatility shield to get tax-free liquidity to cover discretionary needs during periods of market downturn.

When people ask David "When is the ideal time to reposition money to avoid retiring into a market crash?", he always suggests not to wait for the crash, or to try to predict one, rather to build protection intentionally.

Mentioned in this episode:

David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track

The Power of Zero: How to Get to the 0% Tax Bracket and Transform Your Retirement by David McKnight

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube