Michelle Jegge, 63, has been planning for retirement for decades. A self-described "big investor," she runs a small insurance firm and has invested about 30 percent of her money in real estate and stocks.
"That's the way to grow," Jegge said. "It's [a] rocky road, but that's the way to grow."
Now Jegge is in what some financial experts call the "danger zone." The last five to 10 years before retirement can make or break your financial future, especially if you have your hard-earned money exposed to too much risk.
An unexpected financial crisis can wreak havoc on investments. Think about 2008, when the average U.S. worker lost about 24 percent of the balance in his or her 401(k) account. Even in better times, market volatility — always unpredictable — can seriously damage your nest egg.
"Putting a retirement plan in place means making sure clients have a successful financial plan in good, average and poor markets," said Jeffrey T. Boyer, a certified financial planner with RegentAtlantic. "So, essentially, if we have financial plan that's going to work in all those environments, you've sort of taken the market out of the equation."
No matter when you decide to retire — or what happens in the financial markets — there are a few questions that financial advisors say you should be able to answer to help make sure your retirement money will last as long as you live.
1. What's your budget? Everyone needs a cash cushion, but it's even more important when you are retired. If you tap your investments too quickly, you may risk running out of money.
Some financial advisors suggest retirees should have at least 12 to 18 months' worth of cash for unexpected expenses. Regardless of market volatility, you still must be able to pay essential bills.
2. Where will you get your retirement income? You'll have a guaranteed stream of income from Social Security, but that probably won't cover all of your expenses. You'll likely have to withdraw money from your 401(k), individual retirement account or other investments to cover living costs. Tally up all of the sources of your retirement income.
3. How much risk can you afford — or do you need — to take to make sure your money will last? Most retirees have the bulk of their money tied up in 401(k)s, IRAs and other investments.
You will certainly want to have a portion of your portfolio in fixed income, but you may also need to have a significant part of the pie in stocks to make sure your money continues to grow. After all, you may be retired for two decades or more. Talk to a financial advisor who can assess the risk you should take to reach your financial goals.
When ramping up to retirement, Boyer and other financial advisors agree it is important for investors to diversify assets, minimize the tax impact and maximize Social Security benefits. "The dollars at stake between delaying Social Security to age 70 and accepting it early at age 62 could add up to hundreds of thousands of dollars in additional benefits," noted Boyer.
Working longer may also help some retirees avoid getting trapped by the danger zone — meaning they won't have to rely on investment income in a volatile market. For her part, Jegge said she could see herself working until at least 70 — all the while saving and investing to secure her financial future.