To Stay on Track for Retirement, Consider Doing This

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In the run-up to retirement, you’re usually dealing with lots of uncertainty. You’re likely trying to decide when to retire, how you’ll spend your time in retirement and how you’ll generate income in retirement.

One thing you don’t want is a market correction or a bear market.

Unfortunately, market uncertainty can be a big factor heading into and during retirement. Even if you retire in a bull market, conditions can change quickly, as retirees found during the early months of the COVID-19 pandemic, when the S&P 500 fell 34% from February 19, 2020, through March 23, 2020.

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Research reveals that individuals who retire during or right before a bear market are more likely to experience negative investment returns early in their retirement. This phenomenon, known as sequence of return risk, can lead to withdrawing money from lower retirement balances, potentially endangering retirement income sustainability.

Sequence of return risk can be aggravated by emotionally driven investing decisions that can make the situation worse.

While there is no way to predict how the markets will behave in the future, you can decide how you’ll react to market volatility. That can seem like a big ask at a time when you’ve stopped working and are dependent upon your savings to sustain you through retirement.

In fact, 63% of those surveyed by Allianz Life were more worried about running out of money than death.

In this article, I’ll explain how having a disciplined approach to your retirement income and investment plan can help outweigh any potential financial worry.

Why create an investment policy statement

When you build a sustainable retirement plan and create guardrails around your investing and money decisions in retirement, you can remove some uncertainty from your future — the uncertainty about how you’ll finance your retirement and how you will react to market and economic events.

I’ve found that emotional decision-making can derail a retirement faster than a negative market or economic events.

Making a plan that accounts for risks such as sequence of return risk — and sticking to it — creates a disciplined approach to retirement. Emphasizing that plan with an investment policy statement that reminds you of what you’re doing and why you are doing it can make the difference between success and failure.

I’m a veteran of the U.S. Marine Corps, and Marines focus on discipline and having a plan when situations go wrong. You should have the same approach to your investment strategy.

A retirement plan is only as good as the implementation behind it, which is where you have the power to stay the course to a sustainable retirement.

Your investment policy statement

Large, institutional investors regularly employ investment policy statements with their investment managers to describe the rules governing how their money will be invested.

When you create an investment policy statement, you put in writing exactly how your savings will be invested in retirement to cover all your expenses.

Your investment policy statement should include a strategy for how you’ll deal with bear markets. Exactly how you’ll do that will depend on your finances and goals.

For example, you may have set aside enough money to fund several years of expenses in a low-risk account so that you won’t need to sell stocks during a prolonged bear market.

Or, perhaps you have annuities or fixed income investments that can generate enough income to cover you without having to sell stocks during that same bear market.

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There are many options in dealing with a bear market in retirement, but the important point here is that you make a plan in advance, and you write it down.

Then you ensure that your specific investment policy statement is readily available so that you can take a look at it and stick with your pre-determined path instead of panicking and selling.

If you’re married, be sure that both you and your spouse create the policy together, or at least are both committed to it.

That way, if one of you gets upset, the other can pull out the investment policy statement and discuss the situation and why it’s best to stick with your plan.

Put it in writing

Putting your decisions in writing is so important because it creates a commitment to your plan beyond lip service. You can even frame your investment policy statement and keep it somewhere visible, so you’ll always be reminded why you are doing what you are doing.

If you don’t yet have an investment policy statement, it’s not too late. Talk to your spouse and create some guardrails around your investment decision-making so you are less likely to make a rash decision that you could regret in the future.

Amy Buttell contributed to this article.

Investment advisory services offered through duly registered individuals on behalf CreativeOne Wealth, LLC, a Registered Investment Adviser. CreativeOne Wealth, LLC and Trinity Financial Group are unaffiliated entities. Licensed Insurance Professional.

This information has been provided by an Investment Adviser Representative. The statements and opinions expressed are those of the author and are subject to change at any time. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Matt Green is a Wealth Adviser at Trinity Financial Group. He started his career in financial services in 1998. Matt has trademarked the phrase “Relationships are essential to life, therefore make them last forever.” It’s a core belief of his that permeates through all he does. Matt holds his Series 65 Securities License and is an Investment Adviser Representative. This allows him to provide financial and investment advice, as well as personally manage investment portfolios. As a fiduciary adviser, he is required to always do what is in the best interest of his clients.