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Retirement Investing in 2022's Challenging Markets

This year’s combination of higher inflation and volatility has been particularly challenging for retirement investors. 

Retirees have seen their investments decline, while they’ve had to increase their spending to keep up with rising costs of living.

In Fidelity's recently released 2022 State of Retirement Planning, 71% of respondents were concerned about how inflation could impact their retirement. 

Changing markets can be unnerving for retirees who rely on their investments for financial security. When you are no longer receiving regular paychecks, it can feel as if you need to protect every penny of your retirement assets. But remember that in retirement, you don’t need all your money all at once. Even in retirement, you’re likely still a long-term investor for at least some of your assets. 

Given today’s life expectancies, new retirees could be invested for another 20 or even 40 years. In that context, a few lower-than-average years probably won’t derail your long-term plans.

It’s normal for both your investments and your spending to fluctuate during retirement, and most retirement planning anticipates there will be some adjustments along the way. Assuming that you’ve got a solid retirement plan in place, there’s probably no need to make major changes to it now. While the current market conditions aren’t optimal, they also won’t last throughout your retirement years.

If you’re feeling anxious, though, here are some potential adjustments to consider depending on where you are in retirement. As always, talk with your advisor to determine what’s best for you. 

In retirement? Review your cash flow 

If you’re currently not working, you’ll want to make sure you’ve allocated in a way that helps you stay on track through market pullbacks and that you have enough cash on hand to pay your bills. This is a good time to review how much you can safely spend from your retirement accounts each year (this is sometimes called your withdrawal rate or your cash flow) and what part of your account you’re using for your spending. 

Some retirees try to spend less following a market loss, so they’re withdrawing less when their accounts are at lower levels. This may be harder to do this year given inflation, but even small adjustments could help extend your savings. 

Another strategy is to use your fixed income or even cash reserves to cover your spending during volatile markets. This gives your equity investments time to recover from declines and it also naturally rebalances your allocation. You’ll need a plan to replenish your cash reserves once markets recover, however.   

Nearing retirement? Mitigate risk

If you are planning to retire in the next few years or you’re in the first years of retirement, then you’ll want to focus on mitigating risk. The most vulnerable period for retirees is after they stop getting a paycheck. The years before and after you retire are when you typically have the most money in your retirement accounts, so you have the most to lose in a down market. You still need to take some risk to grow your assets, but dialing down risk at this stage can help you avoid a big loss early on.  

People who happen to retire during a bear market or right before a bear market typically have a higher risk of running out of money during retirement because they’re withdrawing from their portfolio while their portfolio is losing value. So this is a good time to test your retirement plans to assess how your investments might hold up if the current decline turned into a bear market. 

This is part of our financial planning process: one of the initial test scenarios we look at is the possibility of a client experiencing two bear markets early in retirement. This helps us see how a substantial decline could impact clients’ retirement plans over the long term and make sure clients are positioned in a way that can make their money last.

If you aren’t feeling confident about your retirement plans or you need help getting a solid plan together, then reach out to a FundX advisor and let’s see if we’re a good fit for you and you’re a good fit for us. 

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