Retiring Soon? Here's how you should handle these crazy market drops
by Alessandra Malito
3/9/2020
It’s hard to be sanguine when retirement is around the corner
Investors have been on a roller coaster the past month, but near-retirees are probably wondering how they can get off the ride — and fast. Failing to do so could lead to a less-than-ideal nest egg in retirement.
The markets have been volatile, what with plunging oil prices and fears of the spreading coronavirus affecting global economies.
Most investors are told to stay the course, especially if retirement is far away. But some people may not have time on their side, especially if they intend to retire within the next year or so. Individuals who enter retirement during a market downturn face a “sequence of returns” risk, which means they could potentially be withdrawing assets from their investment principles — not investment gains. When that happens, they can lose future returns.
This is also a good time to see how much of a portfolio or assets are in conservative funds or cash, said Alex Reffett, co-founder of East Paces Group in Atlanta. “I would recommend having five to seven years of cash flow in very conservative assets that aren’t affected by short-term market volatility,” he said. This way, “you will feel confident that you can ride out market volatility, even in serious recessions like 2008-09.” With this strategy, investors are withdrawing in the immediate future from these assets, leaving their investments in equities to rebound over time (and thus, deterring a real loss).
Financial plans are meant to be unique to each individual investor, so it’s hard to suggest a “perfect” asset allocation for any near-retiree. Still, investors — and if they have one, their advisers — can take a second look at their portfolios to see where they stand and create “what-if” scenarios. “Hopefully, this is a wake-up call for anyone who has been trying to time the markets,” Reffett said. “You need to base your investment strategy on retirement goals and timeline.”
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