How to Go About Retiring These Days

The past several months have been rough on investments. Whatever the cause, market mayhem can be a real concern for retirees and near-retirees, who have less time to make up for big market declines. Kiplinger’s March 2016 article, “How to Retire During a Volatile Stock Market,” lays out seven tips to help you survive.

Don’t Panic! An important lesson of the devastating 2007-09 downturn is that even in the worst of times, recoveries can occur in a reasonable period. Since 1945, it has taken about four months to recover from market declines of 10% to 20%. Stay the course.

Monitor Your Portfolio. Retirees need an investment horizon long enough to withstand this storm or whatever the market has in store. For a retirement that can last decades, new retirees should have 40% to 60% of their assets in stocks. Stocks are better with inflation—better than bonds and cash over time, so even 90-year-olds should keep at least 20% of their assets in stocks. You should have been cutting back on stocks periodically over the past few years, and it’s a good time to review your investment mix to see if it’s consistent with your tolerance for risk.

Diversify. Investors should own a mix of domestic and foreign bonds and U.S. and international stocks. Your stock allocation should have a variety of market sectors, with no one sector having more than 5% to 10% of your holdings.

Stick With High-Quality Holdings. This is no time to get risky, so stick with companies with dependable earnings, healthy balance sheets, and substantial dividends, or funds that invest in such companies.

Tap Your Cash Bucket. Instead of dumping stocks, use Social Security and any annuities, plus the portion of your portfolio that is in cash and short-term CDs to pay your expenses. If you have planned for the inevitable downturns, you should have enough in cash and cash-like investments to cover two to three years of living expenses.

Rethink Your Withdrawal Strategy. The key is to be flexible, and if you don’t have other income to offset lower withdrawals, you should think about deferring gifts and discretionary expenditures until the market stabilizes. Also note that spending changes (and typically declines) in retirement, which may make it easier to cut back.

Postpone Retirement. This may sound drastic, but delaying retirement can really improve retirement success. This provides more time to save, including making catch-up contributions to retirement accounts, plus allows money in your accounts to grow. You’ll also have fewer years during which you must rely on savings once you do retire. Working longer can really ease strain on your portfolio.

Reference:  Kiplinger’s (March 2016) “How to Retire During a Volatile Stock Market”