5 Ways Retirees Can Play Defense With Retirement Portfolios

Work Longer

This won’t work for everyone: Health problems or corporate downsizing often force people into retirement earlier than expected. But if you’re able to extend your working years, you’ll do your portfolio several favors. Your money has more time to grow; the additional income can help you delay claiming Social Security, giving you a higher benefit down the road; and you reduce the number of retirement years that your nest egg must support. If you can work even part-time—perhaps just enough so that wages, rather than portfolio withdrawals, can cover your essential expenses—“there’s a lot of power in that,” says retirement researcher and actuary Joe Tomlinson.

Add Guaranteed Income

When you have enough guaranteed income to cover your basic living expenses, you can watch the market gyrate without breaking a sweat. Your first step: Maximize your Social Security benefit. Consider online services that offer personalized claiming strategies. Social Security Solutions (opens in new tab), for example, offers advice starting at $19.95. “Social Security is guaranteed income that’s inflation adjusted,” Ward says. “You can’t get better than that.” (Read Time Claims to Maximize Social Security Benefits.)

If Social Security, pensions and other guaranteed income sources don’t cover your basic bills, consider a single-premium immediate annuity to fill in the gap. Compare annuity quotes at ImmediateAnnuities.com (opens in new tab).

QUIZ: How Well Do You Really Understand Annuities?

Adjust Spending

If guaranteed income covers your essential expenses, you have more flexibility to vary the portfolio withdrawals that will cover your discretionary spending. Rather than withdrawing the same inflation-adjusted dollar amount year after year, which can cause nail-biting portfolio declines when markets drop, consider an approach that lets withdrawals vary with your investment performance. One strategy: Use the required minimum distribution (opens in new tab) listed for your age in the IRS table.

Build a Cash Buffer

If you don’t have enough guaranteed income to cover basic expenses, you might consider maintaining a cash bucket that could fill in the gap for up to two years, Ward says. That cash might just be the reassurance you need to avoid panic-selling during a market crash.

Trim Your Tax Bill

The bright side of market volatility: It may open up tax-saving opportunities. If you have losing holdings in taxable accounts, consider harvesting those losses to offset gains elsewhere, says Jim Holtzman, an adviser at Legend Financial Advisors. You might also consider a Roth conversion. Lower investment values in a traditional IRA would mean a lower tax bill if you were to convert that account to a Roth. Just remember this is a one-way street: You can no longer undo a Roth conversion.