How to make your savings last? That is the most serious question and challenge investors face today. With life expectancies rising, interest rates dropping to near zero, and market uncertainty remaining at the forefront of investors’ minds, planning for retirement – aka 30 years without a paycheck – has become increasingly difficult. Of course, spending less and saving more is part of a sound plan, but the more critical part comes from addressing how, when, and from where to take your income during retirement years.
It is critical that investors understand that market returns will have an impact on their retirement plan. However, if positioned properly, the impact doesn’t have to derail their plan. Let’s face it, we can’t influence market direction or returns. What we can influence and need to control are cash-flows. Specifically, by taking a barbell approach to investing we are able to assist investors in optimizing the when, where, and how much income they take from the various components of their portfolio.
Having a need based investment strategy that addresses short-term, intermediate-term, and long-term investment needs is critical. But investors also need to focus attention on how to optimize withdrawal rates from their portfolio. The benefits of diversification aren’t limited to reducing portfolio volatility. When done properly diversification also provides a mechanism that affords investors choices of when and where to take their retirement income – a critical component to making savings last.
Living longer brings additional challenges for retirees. Simply put, it means that retirees also need to worry about and be mindful of how much income to take from their portfolio during market downturns. Looking forward, investors will have to face the reality that the retirement income they receive will have to be flexible and adjust to market conditions. Having a process in place that is designed to help address these pitfalls and risks is likely to prove to be the best way to address this conundrum. The bottom line is that investors need to control withdrawal rates, and, just as importantly, when and where to take income from.
Ask yourself, if a market correction such as the one in 2007 and 2008 reoccurs, are you prepared? If not, you’d be wise to implement a plan that addresses this probability.
Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2900 ext. 247 or firstname.lastname@example.org.