Retiring With Confidence During Uncertain Times
BY: Daniel M. Savage
Economic uncertainty and market volatility can be stressful, particularly when occurring just prior to, or during, the early stages of retirement. Because it’s natural to be concerned about your financial well-being, it may be tempting to make changes to your investments – to do…something!
However, one must remember that financial headlines do not necessarily correspond with how your portfolio is actually performing, especially if you are appropriately diversified for your individual circumstances. Remember, also, the valuable benefits of patience, combined with a long-term view and a willingness to consider spending adjustments.
While economic and market uncertainties are beyond our control, we can be proactive by focusing on those things that aren’t. Here are five moves you can make now that will reduce uncertainty and benefit your retirement over the longer term.
- Re-assess your risk tolerance and position your portfolio accordingly. Your specific asset allocation will depend on your risk tolerance, financial needs, and time horizon; however, as a general rule, it is important to include stocks to maintain growth potential during a retirement that could last for decades. Bond and cash positions can be increased as you become older and/or in response to other important developments.
- Analyze your expenses and create a retirement budget. Unfortunately, most retirees focus almost exclusively on asset accumulation and income production without considering the enormous impact of expenses. Relying on tired dictums like, “You’ll need 60-70% of your pre-retirement income to maintain your current lifestyle,” is unwise. The U. S. Bureau of Labor Statistics informs us that the four largest expense categories for individuals 65 and older are, on average, housing (35%), transportation (15%), health care (14%), and food (13%), leaving 23% for everything else. How do your spending practices compare to these averages?
- Be flexible about retirement. If you don’t have a clear path to a financially comfortable retirement, consider one of the following: 1) delaying retirement by a year or two, to strengthen your retirement asset base and/or reduce debt; 2) working part-time; or 3) turning a hobby into a profitable venture.
- Increase cash reserves. Most people think of cash reserves in the context of anticipating job (income) loss or unexpected major expenses, but such reserves take on new meaning in the context of retirement. As a source of funds for routine living expenses, they can buy time for your portfolio to recover from a down market; therefore, consider a buffer that will cover up to two years of expenses.
- Seek guidance from a retirement professional. If you want to make changes or simply confirm that your retirement plan is sound, consider speaking with a seasoned and credentialed wealth manager or financial advisor. It will be time well spent in the pursuit of peace of mind.
Economic and market uncertainties will always be a reality. An individual who retires today will likely experience several economic recession/growth and market correction/recovery cycles. You will enjoy greater financial success and less stress during retirement if you do the following:
- Regularly reassess where you stand with respect to your retirement goals and risk tolerance.
- Monitor your investment portfolio and stay on plan.
- Maintain robust cash reserves throughout retirement.
- Stay flexible.
- Develop a retirement budget and be disciplined about adhering to it.
As Winston Churchill famously said, “Let our advance worrying become advance thinking and planning.”