Connect with us

Hi, what are you looking for?

Preparing Your Portfolio For Retirement

Think about this analogy: When an airplane is preparing to land, it doesn’t descend 30,000 feet in a matter of seconds. Rather, it happens gradually. The pilot adjusts to the landscape and weather conditions to assure a soft landing. In the years leading up to retirement, you should begin to treat your investment portfolio in a similar manner. Prepare ahead of time to protect your assets and adjust as dictated by market and economic conditions to help assure a soft landing in retirement.

Adjusting your portfolio means taking steps to “downshift” as retirement nears, reducing some of the risks that may exist in your asset mix. While you were focused on building wealth in the years you accumulated savings for retirement, your focus should change as you approach the end of your working years. It’s important to protect the wealth you’ve worked hard to build and position your portfolio to generate your retirement paycheck.

Dealing with unpredictability

Money invested in assets that vary in value, including stocks and bonds, are subject to periodic fluctuations. In prior years, you may have had time to ride out any market turbulence and overcome short-term losses once markets recovered. If you wait until retirement to adjust your portfolio, you may be surprised by an untimely market downturn. This unpredictability could result in a “hard landing” for your portfolio, leaving you with less money in retirement as compared to your plans.

For example, a couple with $1,000,000 saved for retirement may plan to withdraw $40,000 each year from that account, (assuming they withdraw four percent of the principal value annually to sustain 25 years in retirement). If the money was all invested in stocks and the portfolio sustained a 25 percent decline just prior to retirement, the value would drop to $750,000, leaving the couple with $30,000 a year. By contrast, if they positioned the portfolio more strategically prior to retirement, they may have protected themselves, at least in part, from the market’s downturn.

A gradual process

The process of shifting from accumulating wealth to an income-generation focus in your portfolio should happen over time. One approach is to gradually reduce your positions in assets that are subject to greater market volatility in the years leading up to retirement. For example, that may mean reducing your portfolio’s exposure to stocks while increasing positions in fixed income investments.

However, not all your money needs to be moved out of stocks, even in retirement. Equities historically have offered more growth potential than many other types of investments. Given today’s long life expectancies, you want to be prepared for the likelihood that living costs will be higher 20 or 30 years from the time you begin retirement. For this reason, stocks may still make sense for your situation. You may want to reduce your emphasis on investments that seek to maximize capital appreciation and emphasize stocks that tend to be less volatile and pay competitive dividends.

Other strategies may come into play too, such as annuities that provide lifetime income in retirement, or alternative investments that can diversify your portfolio. A financial advisor can help you determine a strategy that suits your specific circumstances as you prepare for a smooth retirement landing.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Facebook

You May Also Like

Tech

The best cell phone for seniors varies based on the functionality you desire. Some seniors will want the latest technology, while others will want...

Health & Beauty

There are three primary types of this disease known as type 1 and type 2, and the third one is called gestational diabetes. Regardless...

Home & Garden

Long gone are the days when apartment hunters had to carefully scan the newspaper classifieds to find a place to live. Today, any renter...

Auto

Truck dealers have never been more willing to negotiate and buyers can easily find an interest free truck deal on many 2020 & 2021...

Copyright © 2021 ShopperMetro - All Rights Reserved

The information found on this website is not intended or implied to replace professional, legal or financial help. All content contained on this website including, but not limited to, images, text, graphics, and information are for general informational purposes only. This website is meant to provide general information to users that are researching general information, including but not limited to, legal, financial, auto, health, home & more. The site should simply be used as a resource for information and should never be a substitute for speaking with a professional if you want expert advice.