Don’t Let Your Clients Live Retirement In Recovery Mode

So, you thought you had it all figured out.

You were convinced you could keep all or most of your savings invested in the stock market, maximize your earnings and then, somehow, choose just the right moment to move your money to something safer.

How's that working out for you, given the uncertainty we're experiencing right now in the U.S. and globally?

Maybe not so badly if you're in your 20s, 30s, 40s or even 50s, with plenty of time to recover from the latest major downturn (and, perhaps, with a plan to do things a bit differently in the future). But if you're in your 60s or older and you're feeling anxious (or worse) about your portfolio's prospects these days, here's a little reminder:

You can't time the market. Don't try it. Not if you want to enjoy a long retirement without worrying about how much money you can withdraw from your investment accounts every month.

Stock market corrections -- defined as a decline in a major market index of at least 10% -- are utterly unpredictable. Even the most expert investors can't say when a correction will start, how long one will last, how precipitous the decline might be or what could cause the fall. And no one can predict Black Swan events like the coronavirus pandemic.

Which is why, if you're working with a financial professional who's looking out for your best interests, he or she has likely been urging you to transition from a portfolio that's all about accumulation to a plan that focuses on preserving your capital as well as you move toward retirement. With a strong plan in place, you won't have to worry as much about resuscitating your retirement savings every time the markets take a hit, whether it's from a pandemic, a drop in oil prices, political change or a bursting investment bubble.

Maybe you have been ignoring the warnings from your own adviser or those who give financial guidance in the media. It isn't easy to change your mindset after years of diligently saving for your goals. I have clients right now -- a smart and frugal couple with $2 million saved, a pension and healthy Social Security benefits to tap -- who still aren't convinced they have enough to retire on. It's taken me about six months to nudge them toward an allocation that's more about protection than growth.

Here are some of the things I want them -- and you -- to understand about retirement planning:

1. In retirement, it's all about income

Knowing where your money will come from every month is crucial because you are, in effect, creating your own paycheck. Those income streams might include:

• Social Security: There are hundreds of filing strategies available, and you need to understand which ones can help couples maximize their Social Security payments, depending on what age they file. Keep in mind that after one spouse dies, the surviving spouse will receive only the higher benefit amount each month. It's important to have a plan for replacing that lost income.
• Pension(s): There are claiming decisions to be made here, too. For example, you may be offered a lump sum payout at some point. And you probably will have options regarding survivor benefits. Don't let greed make the decisions for you.
• Investment savings: You might be counting on a 401(k), traditional IRA or Roth IRA; rental income; or other income-paying assets. There are strategies that can help you maximize all those investments and -- just as importantly -- protect them. If you're close to retiring and you'll be using these assets for income, you should be thinking about moving to a more conservative portfolio mix that can stand up to a market correction or crash. And you may want to consider a fixed indexed annuity, which can help provide reliable income to fill any gap that's left after you determine your Social Security and pension amounts. You'll also want to have a withdrawal strategy in place that looks at how much you'll take out each year and which accounts you'll take the money from. (If you've been planning on using the old "4% rule" to determine your yearly withdrawal rate, you may want to reconsider. Many financial experts are now saying that rate probably should be closer to 3% if you want to be more confident that your money will last.)

2. You can stay invested for growth - just at a smaller percentage

Once you have an overall income plan and a strategy for getting reliable income in retirement, you'll still have to deal with inflation, and stocks can help you address that need. You also can use the potential growth that stocks provide to build future capital for your surviving spouse, where appropriate.

3. You'll want to prepare for future taxes

When financial professionals talk about diversification, they're usually referring to an appropriate mix of stocks, bonds and other assets in your portfolio. But it's also important to diversify with taxes in mind. A mix of taxable and tax-free income can make your nest egg less vulnerable. No one knows what tax rates will be in the future, so it's essential to be proactive with your plan.

4. If a legacy is important, don't leave it to chance

The more you do now to protect yourself and your spouse in retirement, the more likely it is that you'll have something to leave behind for your children and favorite charities. That means planning for long-term care and other costs that might come up as you age. You may want to look at various life insurance products and strategies. And you'll want to think about how your investments will transition upon your death. Estate planning is complicated, which is why there are attorneys and financial advisers who specialize in helping clients work toward this final goal.

If you're near or in retirement, you should be working with an adviser who specializes in advance planning -- not just investment strategies, but also income, tax, health care and legacy planning. If you've been DIYing it or depending on someone who's focused strictly on accumulation, it may be time to make a change. But, really, it all starts with changing your own mindset.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Sterling Wealth Management are not affiliated companies.

Investing involves risk, including possible loss of principal. No investment strategy ensures a profit or guarantees against loss in a declining market. Insurance and annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company. Sterling Wealth Management does not offer tax or legal advice or services. Always consult with qualified tax/legal advisers concerning your own circumstances. 580994

Kim Franke-Folstad contributed to this article.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.