Article originally published by Kiplinger.com
Written by Jerry Golden
“In response to the wild market swings caused by inflation and Russia’s attack on Ukraine, most investment advisers are publishing articles about staying the course during volatile times. I’ve found one problem with these suggestions, particularly when it comes to investors near or in retirement: The advice is focused on your investment allocation, when your own focus most likely will be on your income, now and in the future. You don’t want a small — or worse yet, a large — market correction to wipe out your plans for income along with what you want to spend it on.
So, my question is: How much of your current and future retirement income should be dependent on the stock market — no matter whether it is heading up or down at any given point?
Answer: Design a plan for retirement income and you’ll find your safe harbor.
How to think about market volatility in a plan for retirement income
People like you who are thinking a lot about retirement generally fit into three stages:
- Planning to retire in five to 10 years and wondering about whether and how to reposition your savings during the homestretch.
- About to retire and ready to implement the final pieces of a plan that looked pretty good over the past few years.
- Already retired with a plan that has done well for the past several years — but nervous about the effects of the latest market volatility.
When you put together your own plan for retirement income you want your income to: (a) meet your current needs, (b) grow over time, and (c) last your lifetime. And you may want to leave a specific legacy at your passing. Finally, while often not discussed, you want a plan with a long-term view that will also reduce the anxiety that comes with stomach-churning drops in the market.
In retirement, the No. 1 concern is running out of money, so although you want the potential upside of the market, you also want to avoid big gambles. The result should be a plan that includes stocks, while also relying on income from safe sources to balance out the markets’ rough rides.
A Strategy to Weather Market Crashes
The goal is simple: You don’t want to be forced to change your lifestyle because of a downturn in the market, or even from a large, unexpected expense. Cutting back during retirement feels just like it does when you were employed: rotten. So, here’s our recommended approach to building a plan for retirement income that can weather the storms:
- Create a plan that is built around income. Understand what happens to income when market volatility occurs.
- Make sure that a large percentage of that income is safe and not impacted by market swings.
- Soften the impact of market gyrations by making sure any income that is based on a withdrawal/sale of investment is from a balanced portfolio of stocks and bonds
- Actively manage your plan so that if there is that market correction you are able to make minor adjustments to your planning objectives going forward.”
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Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.