By Jean D. Koehler, Financial Advisor with Ameriprise Financial Services, Inc.
Retirement is an important milestone that often comes after years (or decades) of careful planning. But even the most seasoned planners couldn’t have foreseen the severe market selloff that happened in March in reaction to the COVID-19 pandemic. The abrupt end to the 10-year bull market surprised investors of all ages who are now wondering how long it will take for their portfolios to recover.
Unlike younger workers with many years ahead of earning and saving, investors who are retired or nearing retirement have less time to wait out their losses. But there are still actions they can take to help secure their finances, even during periods of uncertainty like we’re experiencing today.
If this situation applies to you, here are a few steps to consider in this new environment:
If you are approaching retirement:
1. Pick your retirement date.
If you haven’t already, take time now to decide the year and month when you (and potentially your spouse or partner) want to retire. Given the current environment, you may want to consider extending your time in the workforce — whether it’s continuing your current career or moving into a new full or part-time role. Either way, your answer can have a big impact on your investment decisions from this point forward.
2. Ensure your investments are diversified.
Not all sectors of the economy are alike, and they react to news and events differently. For those nearing retirement, the recent spike in volatility is a reminder of how having a broadly diversified portfolio can help reduce your investing risk.
Instead of simply selling your stocks in attempt to cut your losses, review your portfolio to see if it is properly balanced between stocks, bonds, and cash that align with your goals, time horizon and your ability to manage risk. While a diversified portfolio can’t guarantee profits or protect against all losses, it can greatly reduce the impact of volatility.
3. Balance your need for protection with growth.
Protecting your portfolio from market downturns becomes more important as you approach the day when you start living off your savings. During this time, you may want to consider investing the money you plan to use for income in the first few years of retirement more conservatively in liquid vehicles that are easy to access. This can help give you peace of mind that you are prepared to handle upcoming expenses no matter what’s happening in the markets.
If you are currently in retirement:
1. Review your withdrawal strategy.
If the recent decrease in the value of your portfolio makes you nervous, revisit the amount of money you withdraw monthly to meet your expenses. As you review, the goal is to be assured that the amount you withdraw to meet the next year or two of expenses does not put your long-term financial security in jeopardy. If your base of assets is reduced, you may have to trim your withdrawal amount to assure you have a sustainable long-term income strategy.
2. Don’t take unnecessary chances in your stock exposure.
For the long-term investor — which may include you as a retiree — volatility in equities can work in your favor. It’s possible that you will spend one to three decades in retirement, giving you time to withstand some market moves. At the same time, it’s important to preserve your base of savings and not be overexposed to stock risk. Now is a good time to review your exposure in the context of your full financial plan to evaluate if you are taking the right amount of risk. Additionally, focus your equity portfolio on higher quality stocks – primarily blue-chip companies that tend to demonstrate more stable performance. Stocks that pay competitive dividends may also be an effective choice to provide a source of reliable return on your investments.
If you are concerned about the recent performance of the markets and its impact on your retirement, consult with a qualified financial advisor to determine what steps may be right for you.