Retirement might be five or ten years away, but now is the time to act if you want to worry less when the big day comes.
There are a limited number of options should you find yourself suffering from the sequence of return risk during the onset of retirement. Many consider them less than desirable. They tend to defeat the purpose of “living the good life” in retirement.
“Having a short-term reserve to draw from is a good way to mitigate the risk,” says Shawn Plummer, CEO of The Annuity Expert, in Atlanta. “Basically, you want to avoid having to sell your investments in a market downturn, since those investments are likely to rebound in the near-to-medium term. With cash or other liquid investments available, you can essentially wait out the sequence of returns risk.
Here’s something to remember: the purpose of this tactic is to protect you on the downside, not to surpass any upside hurdles. In other words, you’re not aiming to earn any bragging rights. You just want to make your life more at ease. “The biggest thing you can do is make sure you have a financial plan,” says Scott Sturgeon, Founder & Senior Wealth Advisor at Oread Wealth Partners in Leawood, Kansas. “It doesn’t have to be anything fancy, but a rudimentary understanding of whether you’re living within your means, what your long-term cash flow looks like, and ensuring your investment portfolio and other assets are oriented to support your lifestyle in retirement.
Also, you needn’t limit your definition of “cash” to a bank or money market account. It can be invested in other forms of securities, as long as the risk of capital loss or early withdrawal penalties can be diminished if not eliminated. “Once a loss happens in the Risk Zone, you can try to go back to work and/or spend less,” says Ron Surz, President of Target Date Solutions in San Clemente California. “It’s best to guard against the loss in the first place. In other words, investors need to protect their savings in the Risk Zone.”
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