Timing of Your Retirement

The day of Retirement is here! You have banked your last paycheck. You are starting to draw from your retirement accounts…

And BAM! There is a Bear market. What do you do?

Sequence of return comes into play- in a down stock market it takes more shares to get the same amount of money each month. That leaves fewer shares available for when the market rebounds.



1. Reducing your monthly withdrawal amount.

Often retirees living expenses go up when they retire. They are doing everything they didn’t have time to do while they were working.

Evaluate your monthly expenses and see where you can reduce costs. The less you take now, the more you will have later.

A variable withdrawal rate can extend the life of your retirement accounts. Drawing more from your accounts when the stock values are higher and less when they are lower.

2. Using other Assets. 

Draw from your bank accounts- savings and money markets. Possibly CDs and Treasury Bills.

Access cash value from your life insurance policy. Do not jeopardize the policy lapsing. You may consider paying the loan back when the stock market is on firmer footing.

Modifications of home loans may reduce mortgage payments; reducing in monthly cash flow.

Drawing from the other sources will preserve the shares of your portfolio, allowing you to wait for a Bull market again.

3. Creating Greater Diversity in your Portfolio.

In the accumulation stage of preparing for retirement, investors tend to be more aggressive in their portfolio. In a market down-turn, they aren’t overly concerned because they have the time to let their investments recover.

In the distribution phase of retirement planning, you may want to remove some of the risk from your portfolio. It doesn’t necessarily mean more bonds. It can mean shifting away from some growth stocks to dividend paying stocks. Being invested in more defensive positions like consumer staples and utilities.

You may still want a position in small and mid-cap. These generally have more volatility than large-cap stocks. Historically, they have provided strong growth. If you are newly retired, you may easily have 20-30 years ahead. You still need growth in a portfolio. Small and mid cap might be an option.

4. Creating a ‘Floor’ of Income.

Most retirees have a base budget. They know their average monthly expenditures that cover their basic needs.

Creating a source of guaranteed cash flow to cover these needs lessens the stress on the portfolio. Sources that provide cash flow are pensions and social security.

In this day, not many companies are providing pensions. Delaying social security is encouraged to receive a larger guaranteed payment. How do you fill the gap?

Annuities can provide a fixed stream of income. There is a wide variety of available – from fixed, indexed and variable. Yes, they have fees, varying amounts depending on the rider. Those fees cover the cost of transferring the risk to an insurance company. The annuity can provide a guaranteed cashflow for a season or indefinitely.

Some investors have created a cash flow from real estate. Especially if there is no longer a mortgage.

Creating a steady cash flow from multiple sources establishes an ‘income floor’. This provides much of your basic monthly expenses. Then the portfolio provides additional income for the ‘extras’. You are not putting as much strain on the portfolio – especially in down markets.

5. Delaying Retirement.

If you haven’t shifted your portfolio to a retirement portfolio, if you don’t have a pension or annuity that creates an income floor, you may want to delay retirement.

Buy yourself some lead time to get positioned for an easier transition to retirement.

An advantage to continuing to work, it is less time and costs your portfolio has to cover. You can also be saving more into retirement when the value of stocks are down.

Maybe your employer will allow you to work in a part time capacity. That allows you a smoother transition into retirement. And allows the employer to maintain a quality worker. Those can be hard to find.

Bear markets are just that, a BEAR!

With some planning, you can manage the sequence of return. And still have a healthy quality of life in your retirement years.

The verbiage herein should not be viewed as a recommendation and should not be used as primary basis for your investment as individual circumstances will vary. These are the opinions of Peggy L. Farnworth CPA, CFP, CSA and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Guarantees are based on the claims paying ability of issuer.


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