If there’s a single group of people who are likely to be experiencing the most consternation over recent market events, it’s those who have just retired or who are on the cusp of hanging it up.
But as with most things in life, the key for new- and near-retirees making it through this period with their sanity intact is to focus on what they can control.
Assess spending rate
People who have just retired or are about to do so are vulnerable to sequence-of-returns risk, which means that a bad market shows up early in retirement. And this imperils your portfolio’s ability to last throughout your retirement years.
Retirees who are pulling cash flows from their portfolios can address that risk by adjusting spending down to ensure that more of their portfolios are in place to recover when the market eventually does.
In our retirement income research, we found that tweaks like forgoing an inflation adjustment following a bear market help ensure that spending lasts over a 30-year period.
If you haven’t yet retired, assess your planned in-retirement spending and identify where you could make cutbacks if needed.
Pull cash flows from safer assets
Ideally, you can pull portfolio cash flows from safer assets and leave your stock positions undisturbed.
That’s the general logic behind the Bucket approach to portfolio construction. In good years for the stock market, harvest appreciated equity assets for income. In bad ones, don’t touch stocks but instead source cash flows from high-quality bonds or cash.
Using that logic, you may even want to reinvest income distributions back into securities that have recently lost value rather than spending them.
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