Will your retirement funds last?

By Luma Wealth on May 12, 2020

 5 Tips for Retirees in a Volatile Market

If you’re currently enjoying or are on the cusp of retirement, a volatile financial market may make you nervous. Will you have the funds needed to enjoy the experiences you’ve planned? Are there things you can do to gain some control? We share five tips that can help you feel steady when the financial markets are not.

1. Don’t panic. When the markets are volatile, emotion may drive people to panic and abandon their investment strategy. However, long-term investing philosophies should not change due to short-term economic upheaval. If you are working with a Luma Wealth advisor, you have done your retirement planning and put a strategy in place. And if you’re in or near retirement, your strategy was likely designed so that major market events would have a minimal long-term impact. If this is the case, stick to your plan.

2. Be flexible. You may benefit from an adjustment to your timeline and spending.

• If you’re not yet retired and have the option to keep working, consider deferring retirement during this time of uncertainty. Nobody knows how long it will take for stock values to come back up, but if you’re able to stay in the workforce and avoid using your funds long enough for that to happen, you’ll be in a much stronger financial position once you do retire.
• For those already in retirement, consider adjusting your discretionary spending. Making smaller (say, 3%) permanent decreases to annual spending will provide a bigger bang for your buck versus very steep (20+%) short-term cuts, and they may be much less painful to make.

3. Be informed. One of the most impactful things that you can do right now is to work with your advisors to answer the all-important question, “Am I still on track?” Even if it’s unpleasant news, knowing if your path has changed and how your approach should be adjusted will go a long way towards mitigating current stress levels. With this information, you and your advisor will be armed with the tools necessary to adjust your budget, as needed, and get you back on track.

4. Have a contingency plan. From another budgeting perspective, make sure you have next-in-line sources of cash should you deplete your emergency fund. While such an event may not seem likely at the moment, planning ahead provides peace of mind, especially since some of your options (such as using a home or a secured asset line as a source of funds) may take time to secure.

5. Be strategic. Don’t let fear blind you from taking advantage of opportunities, such as rebalancing and tax-loss harvesting. The SECURE and the CARES Act also have tax savings and deferment provisions that should be considered in this time of uncertainty. What about opportunities that aren’t as readily apparent mid-crisis, such as Roth conversions? Once the decision is made to convert to a Roth, leveraging the timing of that conversion can add a valuable boost and allow your assets to grow tax-free when stocks begin their recovery. However, be aware that taxes must be paid on pre-tax money that is converted into a Roth IRA. And those who believe there is more volatility to come can hedge the risk by engaging in Roth-Conversion-Cost-Averaging.

Our goal is to ease your mind about your wealth so you can focus on your health. If you have any questions about your investments, please contact your Luma Wealth team.