If you were walking along, having a great day, and suddenly you spotted a bear on the path in front of you, what would you do?
a. Run straight for it; or
b. Back away slowly and find a different way to go?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Me, too.
And yet, every day I meet people who’ve completely dropped their guard and are charging into retirement, seemingly unconcerned about the possibility of encountering a bear market that could eat up their hard-earned savings before they know it.
Suffering even modest losses early in retirement — as little as a 10% decline in the first few years of withdrawals — could prematurely deplete their investment plans. Still, they ignore any warnings or signs of danger and proceed.
Maybe they just have really short memories. They’ve forgotten the impact of the market declines in 2000 and 2008. Probably they had plenty of time to recover from those losses while still earning a paycheck.
Or maybe they’re wearing an investor’s version of beer goggles. Instead of being blinded by an excessive amount of alcohol, their judgment has been impaired by the euphoria of a record-setting bull run. They’re so busy staring at the beautiful bottom line on their 401(k) statements every month, they haven’t prepared for the inevitable pullback, correction or worse.
Just to refresh your memory, here’s how that cycle goes:
Hurray! We’re making more money every month! (Jubilation)
Wait, what’s happening here? (Denial)
We should have done … something. (Regret)
Just set the envelope over there, please; I can’t look. (Despair)
The good news is, it’s not too late to change your mindset — or your portfolio mix. Here are some things to consider as you work to secure your future.
1. Rethink your risk.
If, like many people, most of your nest egg is in a 401(k) plan or something similar, you may be heavier in equities than you should be. Your goal in retirement is no longer accumulation; it’s preservation. Talk to an adviser about your risk tolerance. Discuss both your financial and emotional ability to handle market volatility.
2. Regain your balance.
There is no one-size-fits-all answer for what you should have in your portfolio. A good rule of thumb is to take your age and make that the percentage of safer investments. So, for example, if you’re 60 years old, 60% of your money would be in CDs, fixed rate annuities, a money market account, etc. If you have a generous pension and you won’t need your investment savings to pay for your fixed expenses, you could be more aggressive. Or, if neither you nor your spouse has a pension, and you have smaller Social Security checks, you might choose a more conservative allocation.
3. Don’t ignore other dangers.
You don’t want to back away from risk so hard and fast that you fall into a hole you can’t get out of: inflation. Make sure you have a strategy to deal with rising costs over the long term — in everything from groceries to health care. You’ll likely want to keep some of your money in stocks for this purpose; just remember to keep your head when things get hairy. Remember: Panic selling locks in losses forever.
No one can predict what the market will do, so the best plan of action is to be ready for anything. And the best way to do that is with a comprehensive financial plan. If it’s been awhile since you analyzed your risk tolerance or looked at your asset allocation, talk to your adviser now about finding the clearest, safest route to and through retirement.
Kim Franke-Folstad contributed to this article.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
10 Ways Your 1031 Exchange Can Go Horribly WrongDon't let your tax-saving strategy become a financial nightmare — discover the hidden pitfalls that could turn your 1031 exchange into a costly disaster.
-
From Entrepreneur to Retiree: Boosting Your Business' ValueWhen business owners contemplate retirement, their first step should be maximizing the value of their biggest asset. Here are a few steps that could help.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
-
Your Loved One Fell for a Romance Scam: What Not to DoConfronting them probably won't work, but asking them some key questions and urging them to take certain actions could.
-
Three Ways to Help Create Financial Stability for a WidowLoss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray DivorceDivorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
