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 Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
-
The Role of the U.S. Dollar in Retirement: Is It Secure?Protect your retirement from de-dollarization, because “capital always goes where it is treated best."
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
-
The Home Stretch: Seven Essential Steps for Pre-RetireesThe decade before retirement is the home stretch in the race to quit work — but there are crucial financial decisions to make before you reach the finish line.
-
Three Options for Retirees With Concentrated Stock PositionsIf a significant chunk of your portfolio is tied up in a single stock, you'll need to make sure it won't disrupt your retirement and legacy goals. Here's how.
-
Four Reasons It May Be Time to Shop for New InsuranceYou may be unhappy with your insurance for any number of reasons, so once you've decided to shop, what is appropriate (or inappropriate) timing?
-
Before You Invest Like a Politician, Consider This DilemmaAs apps that track congressional stock trading become more popular, investors need to take into consideration some caveats.
-
How to Put Together Your Personal Net Worth StatementNow that tax season is over for most of us, it's the perfect time to organize your assets and liabilities to assess your financial wellness.
