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Can You Lower Your “Reliance Rate” During Retirement?
If you have decades to go until you retire, you don’t need to panic over volatile financial markets – you have plenty of time to regain lost ground and potentially achieve more growth in your investment portfolio. But what if you are nearing retirement or already retired? After all, you will probably need to draw on your investments to pay for some of the costs associated with housing, food and the many other expenses you incur in daily life. So, is a down market cause for alarm?
It shouldn’t be. And you can help reduce your stress level by understanding your “reliance rate.” As its name suggests, your reliance rate tells you how much you rely on your portfolio – rather than other sources, such as Social Security or a pension – to meet your income needs during retirement. So, for example, if you need $60,000 each year, and $40,000 comes from your portfolio, your reliance rate is 66 percent.
Your reliance rate can influence your emotions and investment behavior. A higher reliance rate may tempt you to make emotional decisions during a market decline, since your portfolio is supplying more of your needs. However, if you respond to a steep market drop by making dramatic changes to your portfolio, you may actually increase the likelihood that your money may not last. This is especially true if you move a large portion of your portfolio to cash, as cash does not typically provide growth potential to help keep up with inflation.
There is no "recommended" reliance rate for everyone, But, as a general rule, the higher your reliance rate, the more sensitive your portfolio may be to fluctuations in investment prices. What can you do, then, to either lower this rate or, at least, moderate the risk level attached to it? Here are some suggestions:
Your investment portfolio will certainly be a key source of your retirement income. And by understanding how reliant you are on your portfolio, and the options you have for reducing this reliance, the better prepared you’ll be to withstand the inevitable market downturns.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones. Member SIPC.
Can You Lower Your “Reliance Rate” During Retirement?Short /Radio version:
PSA: Can You Lower Your “Reliance Rate” During Retirement?
TBA June 17, 2020 Words: 185 (excluding FA’s name, address/phone number)
When you’re retired, you will need to draw on your investments to help pay for your living expenses. So, when the financial markets go through a sharp decline, should you be worried?
Actually, there’s no need to panic. But you will want to evaluate your reliance rate – that is, the amount you rely on your investment portfolio to meet your income needs.
You may be able to help reduce this rate. For one thing, see if you can lower your expenses. Creating a budget, and sticking to it, may help.
And if you can afford to delay taking Social Security, you might want to do so, as your checks will get bigger as you approach your full retirement age, which will likely be between 66 and 67.
You might also want to keep a few years’ worth of living expenses in short-term income-producing vehicles. Having these assets available can help you avoid liquidating long-term investments when their prices are down.
By managing your expenses and developing alternative income strategies, you could reduce your reliance rate – which may help you relax during those inevitable market downturns.
This is (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone #).
Number of Words:185