The stock market is officially in “bear market” territory, and could remain that way for some time according to financial analysts and recent reporting from outlets including Bloomberg. For those at or near their transition to a fixed income in retirement, the reaction to these conditions could be very dependent on the closeness they are to leaving a career behind.
This is according to Nicholas Toman, a certified financial planner with Empowered Financial Management which specializes in retirement planning. In a new column at Kiplinger, Toman indicates that proximity to retirement could be a key, critical factor in determining how to respond to volatile market conditions.
“The current state of the stock market is causing virtually all investors to pause and consider if their current strategies are built to weather this storm,” he writes. “Those who are at least 10-15 years away from needing distributions from their investments and who are continuing to build wealth through systematic and regular contributions (i.e., 401K, 403B, IRA , etc.), most likely won’t need to make any significant changes at this point. However, since my clients are primarily those who are within five to seven years of retirement or who have recently retired, the advice I give goes beyond ‘stay the course.’”
To better weather the current conditions, Toman recommends that his clients primarily understand two principles: customizing strategies and viewing income as a driver of retirement plans.
“Your strategies should be specific and customized to you and you alone,” he says of the first. “Go deeper than just following the lead of co-workers, family and friends when determining what moves to make. Since all families have their own set of unique circumstances when it comes to their wealth (longevity, health, tax status, career enjoyment, too many variables to name here), there really is no one-size-fits-all solution.”
Income as a “driver” of retirement plans is the second critical point to comprehend, since a predetermined retirement “budget” and knowing exactly where such funding will come from is key to a successful retirement, he explains.
“If the majority of your income will be coming from predictable sources, such as Social Security and pensions, then you should have more flexibility to avoid ‘locking in losses’ by having to sell investments in this bear market,” he says. “However, if you have a need for money now that is beyond what your Social Security and pensions will cover, then you should consider using financial tools designed to provide income and principal protection, such as CDs and various types of annuities, for a portion of your wealth.”
Read other tips from financial planners to weather a bear market at Kiplinger.