Proactive Retirement Planning

How Americans Nearing Retirement Can Be Proactive Instead of Reactive as We Are on the Edge of An Economic Downturn

As a market downfall is in the near future for Americans, many people nearing retirement are wondering- how can I retire with such uncertainty in the economy? Here are some helpful tips to be proactive instead of reactive with the potential of a market downturn to enable Boomers to be recession proof in their retirement.

First, if you have already saved enough money to retire, then you most likely have been following a long-term investment plan. However, the new retirement reality is a two folded challenge. One, the retirement planning of yesterday doesn’t apply to the new retirement planning needed for today. Two, the realization that there is a major difference between planning for retirement versus planning in retirement. Baby Boomers are learning the difficulty in the transition from the Accumulation phase of retirement planning to the Distribution phase of retirement planning. The top two things ruining Baby Boomer’s retirements are unexpected taxes and the frequent ups and downs of the market. The uncertainty in the market effects many boomers as most have the majority of their retirement savings in the market versus only having their retirement savings in the gains of the market. It is vital to learn the skills to protect your retirement savings against the current and future market downturn. However, it is critical to make sure you get a retirement preservation and distribution plan and to do something different to avoid all the ongoing economic uncertainty. The number one question to ask yourself is do you have an investment plan or a retirement preservation plan that protects you from losing to taxes and stock market fluctuations? The key is to learn the retirement planning road you are on and stress test it with a financial advisor that specializes in retirement preservation planning. Learn about your retirement plan and investments’ success through stress testing with a true comparison with proper risk analysis. Plus, understand the exposure your retirement savings are vulnerable to if another major market drop hits, as many are predicting. Realize the amount of real long-term returns and true costs your earning and paying for the present allocations. One example of analysis is called a Monte Carlo Analysis. This type of analysis allows you to run your savings and investments through hundreds of different market scenarios and test the probability for your plan’s success. This can give you confidence in your investments’ success despite a major market crash or the threat of rising tax rate.

With the high likelihood of an economic downturn, it is best to be a defensive driver as you are nearing retirement. In recent years, risking your investments in a more aggressive allocation may have given you higher return potential, but now it is important to have a more diversified portfolio and a plan designed with less-risk exposure, fewer fees, and higher net returns that are proven retirement savings vehicles. A strategic retirement preservation plan will provide protection from major market swings and guard against a stock market crash. Additionally, always keep cash at hand for emergencies. Here is a helpful tip stated in Kiplinger’s, “On the Cusp of a Market Downturn? What to Do (and Not Do) When Retiring”,” Having the money to cover three to six months’ worth of expenses plus an additional $5,000 for life’s minor accidents can help keep you from having to sell investments in a downturn.”

Even though it is obvious that you want to buy low and sell high when it comes to stocks, many investors will do the opposite in a market downturn to “stop the bleeding”. They want to sell before the market hits rock-bottom; however, many times, when investors do finally sell the market has already hit the bottom. To get the best results, you must get out of the market before a major loss happens and get back into the market right before the upward turn. According to “On the Cusp of a Market Downturn? What to Do (and Not Do) When Retiring”, “In fact, stock returns are typically greater immediately after market losses. In the last 90 years, the average one-year return after a drop of 15% or more in the S&P 500 is 55%.” It is important to diversify your portfolio to make sure you are not too heavily invested in one area and make sure your investments and retirement savings avoid the traditional planning pitfalls that decline and rise in the market swings.

Now is the time to prepare for ongoing economic uncertainty being the new normal, especially if you are already taking income from your retirement savings. Be sure to have a strategic retirement preservation plan. The last position you want to find yourself in is being forced to minimize the amount of the distributions you need to maintain your desired lifestyle or be forced to cut back on your retirement spending. Be mindful of the numerous articles put out by the traditional brokerages that don’t provide any way to actually protect your money, but instead just provide simple solutions of taking out less from your accounts or making cuts to your expenses. There is a night and day difference from having a plan that prevents you from ever being in a difficult financial situation in retirement and a plan that just “fixes” the situation you are in. It is important to prepare yourself for the economic uncertainty ahead and make sure your retirement savings are both safe and protected so you can sleep well and live your best retirement!