Prepare for Detours in the Market: Manage Your Plan in Real-Time
When the stock market takes a dive, retirees with resilient income allocation plans still get by swimmingly. Here's what that looks like.
![](https://cdn.mos.cms.futurecdn.net/Fbux5juQF3oYfbGKAsuBrT-415-80.jpg)
Once you’ve created an income plan for your retirement, don’t think you’re done when the numbers on paper meet your immediate expectations. A successful plan requires regular analysis and adjustments. Both might be required, either because your goals change or the world shifts.
That is the benefit of an income allocation plan over other types of planning.
When I wrote an article called Don’t Bet Your Retirement on Monte Carlo Models, I suggested reliance on safe sources of income, including annuity payments, and a modest outlook on the market to avoid huge ups and downs that you can’t control.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
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.
I did not suggest that you take your money out of the market entirely. Stocks, after all, offer a history of increasing value over time. The hair-raising loss of value, though occasional, tempts some investors to avoid the roller-coaster ride and thus miss out on the longer-term — and sometimes muscular — increases in the market value of equity securities.
How to maintain discipline and ‘stay the course’
What should you do when the Dow Jones average falls for most of a month, or pundits express concerns about a looming recession? Having less of your income dependent upon the market helps. Diversifying your source of withdrawals (primarily your traditional rollover IRA) in a balanced portfolio of stocks and bonds is a plus. And I advocate this: Consider thinking of your investments not as stocks and bonds, income annuities and savings, but as sources of income divided into an interest-portion, dividend portion, annuity payment portion and withdrawal portion. In doing so, you may find that the only source of income impacted by a market swing is your withdrawals. If those represent a small portion of your income, you’re more likely to stay the course.
It is also important to remember that you can always evaluate your Income Allocation plan and update it as circumstances change. We call that “plan management.”
Let’s look at a hypothetical example of a female client who retired at 70 and adopted an Income Allocation plan. She had $1 million in savings at retirement with 50% in a rollover IRA and the balance in personal after-tax savings. She based her plan on a modest stock market outlook of 6% per year. The market performed as expected over the first 10 years and she has already received $505,000 in income from the original plan. Next year’s expected income is $56,000 from dividends, interest, annuity payments and withdrawals. Her income is planned to grow at 2% per year until age 85, continue for life, and still leave of a legacy of over $600,000 at age 95. She feels good about it.
A change of circumstances
Then the stock market goes into a nosedive with a 20% loss in just a few weeks. (Steep drops are not unprecedented. In 2018, between the beginning of October and the end of December that year, the Dow average lost nearly 19%. Of course, it recovered shortly afterward, but it can still be unnerving, and one day it might not recover so readily.)
What should our retiree do in this situation? She may legitimately feel that her financial future is vulnerable. Should she cancel the trip she had planned? Or cut back on gifts she had penciled in for the grandkids?
No.
Before taking any such drastic actions, she gets an update of her plan, based on the current value of her stock portfolio. Here’s what she’d see.
- This year’s income continues at $56,000, thanks in large part because of the guaranteed annuity payments that were part of her original plan.
- Percentage increases in income to age 85 drop to 1.5 % per year vs. 2.0% prior to the stock market pullback.
- Legacy at age 95: $520,000 vs. $600,000 prior to the drop.
What do these numbers mean? And what should she do?
First, the change in next year’s income is not as dramatic as she had feared. In fact, her income will still increase, albeit by not as much as before.
Second, while she understands that there is no free lunch, the updated plan absorbs the market shock and converts that into lower increases in income to age 85 and a lower legacy to her kids and grandkids.
Third, the plan she adopted originally acted as a shock absorber because of the large proportion of safe income.
Now, should she accept the updated plan or request that it be further modified to meet her new set of objectives? For instance, perhaps she wants to preserve the amount of financial legacy she had planned. She can adjust her plan if she wishes, and that is when she should talk to her adviser.
Planning is continuous
In any case, the continual review and refinement of her plan together with a smart and safe long-term strategy worked best for her. What you need is the ability to update your plan when needed without giving up the elements that made sense when you first put it together.
Visit the Income Allocation Tool at Go2Income to start your plan, ask questions and then, make some decisions about what is best for you and your family.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published