What should retirees consider doing in a down market?

Published September 4, 2020

Long version:

The health aspect of the coronavirus affects everyone – we’re all concerned about our well-being and those of our loved ones and communities. However, the economic impact may vary among different age groups – and if you’re retired or about to retire, you might have some special concerns about starting to draw income from your investments when the financial markets are down. What moves should you consider making?

Here are a few suggestions:

  • Review your strategy (and avoid making major changes). During a market downturn, you might be tempted to “do something” – and for many people, that “something” is selling stocks to cut their losses. But this is more of an emotional response than a logical one, because your stocks are long-term investments, and by selling them when they’re down, you’re basically locking in your losses. Instead, try to address your current income needs by the cash, cash equivalents and short-term fixed-income investments in your portfolio, along with other sources, such as Social Security, dividends and interest, and even your pension, if you have one.
  • Review your withdrawal rate. When you retire, you need to determine how much you can withdraw each year from your retirement accounts, such as your IRA and 401(k), without running the risk of outliving your money. Before the market downturn, you might have established an appropriate withdrawal rate for your needs. Suppose, for example, this rate was 4%. However, given the recent fluctuations in the markets, your portfolio’s value may have declined, meaning your withdrawals may be higher as a percentage of your portfolio. Therefore, you might consider adjusting your withdrawal rate downward, or, as an alternative, look for ways to cut down on your spending in the short term. With the stay-at-home measures being undertaken across the country, you may already have cut down spending in areas such as traveling, entertainment and dining out, so you may only have to make a few adjustments.
  • Review your reliance rate. Your reliance rate is how much you rely on your investment portfolio for your income needs. For example, if you need $60,000 in income each year and you’re getting $40,000 of that from your portfolio, your reliance rate is 66%. The higher your reliance rate, the more sensitive you may be to fluctuations in investment prices. If your risk tolerance has been greatly tested by the recent downturn and you don’t have much flexibility with your expenses, you might look for ways of lowering your reliance rate, such as certain annuities, which can provide a guaranteed lifetime income regardless of what’s happing in the financial markets.

You may want to consult with a financial professional to discuss the above suggestions and determine what other moves you might need to make. As a retiree, or near-retiree, it can be unsettling to start tapping into your resources when the financial markets are so turbulent. But if you’ve prepared or you’re willing to explore new courses of action, you can move into your golden years without getting unduly tarnished.

This article was written by Edward Jones for use by your local Edward Jones financial advisor.

Edward Jones. Member SIPC.

Number of words: 498

Short /Radio version:

PSA: What should retirees consider doing in a down market?
TBA: April 10, 2020

Right now, we’re all concerned about the health of our loved ones. But if you’ve recently retired or you’re close to retiring, you’ve also got a big financial question: Do you need to cash out investments now, when their prices are down, to help support you?

You may be able to avoid this issue. For one thing, you could address your current income needs by relying on the cash, cash equivalents and short-term fixed-income investments in your portfolio. You might also be helped by your other income sources, such as Social Security, dividends and interest, and even your pension, if you have one.

Another step you might take is to review your withdrawal rate – the amount you take out each year from your IRA, 401(k) and other retirement accounts. It’s possible you may want to adjust this rate downward, at least temporarily, accompanied by modest adjustments to your spending.

In any case, you may want to consult with a financial professional before making any major changes. If you’ve prepared adequately, you can emerge from this period with your financial future still in good shape.

This is (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone #).

Member SIPC

Number of words: 184 (excluding FA’s name, address/phone number)