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Control What You Can in Challenging Markets

How did you weather the markets in the first half of this year? Between the COIVID-19 crisis and other related economic challenges, navigating these ever-changing variables may have proven difficult. That’s why it’s so important to have a strategy built with flexibility and professional guidance to help your retirement plan stay the course.

Adjust Spending

When markets decline, many retirees and pre-retirees ask: “Am I at risk of running out of money later on in life?” One way to help protect against this possibility is to tie your withdrawals to your portfolio balance. This simply means withdrawing less and reducing discretionary spending when the market is down. In doing so, more of the portfolio will be in place for you to recover when the market stabilizes. If you find you do not need the funds, you can always suspend the withdrawals for a few months.

Many financial plans may tie client withdrawals to a portfolio’s value, which provides a fixed percentage of assets for your living needs. The advantage of this is that in good years, you will have more to spend. The opposite is true too – when markets pull back, you will have less to spend. Flexibility can be built into a plan for market pullbacks by forgoing inflation adjustments or making small spending cuts.

If you are a recent retiree seeking cash flow, we plan for a very modest starting withdrawal amount. This should allow for more resources to adjust the plan based on your needs as you age.

Exercise Flexibility and Creativity

During the boom markets of the 1990s, most aspiring retirees planned to retire early. After the tech bubble in 2000, however, many were forced to work longer, which exercised some flexibility. Other retirees were creative, taking part-time jobs and reining in their spending. Due to the ever-rising costs of healthcare, many couples have adjusted their retirement plan by maintaining full-time employment for the insurance benefits until eligible for Medicare. The benefits of working longer include waiting for the portfolio to recover, earning increased annual benefits for Social Security, and adding to your nest egg while stock prices are lower. We work with our clients to find the right balance given their priorities. If your dream for retirement is pursuing a specific lifestyle, then working a little longer may be what is needed to make your retirement plan add up. If you are more flexible on the lifestyle/spending front, you may be able to retire earlier.

Assess, But Don’t Obsess

We caution clients against emotional decisions on their investments, especially during market pullbacks. If you have a high-quality, diversified investment plan, taking a hands-off approach may be the smartest move. Rebalancing your plan and adding cash that is not earmarked for short-term use can be timely during periods like the first quarter of this year.

Don’t let concerns about your retirement plan overwhelm what’s really important. Healthcare expenses tend to trend up as people age, so if you can maintain a healthy lifestyle, you can delay the draw down on the investments for a later time.

If you are nearing retirement or are already retired and would like a second opinion regarding your portfolio, contact your Stifel Financial Advisor for a complimentary meeting!

Rebalancing may have tax consequences. You should consult with your tax advisor regarding your particular situation.