Retirment planning key to weathering financial storms, experts say

Apr. 1--Set to retire in about a month, Tom Wills watched his 401(k) balance sink by about 20% as the coronavirus pandemic wreaked havoc on the stock market over the past few weeks.

The record downturn could have thwarted the 66-year-old Wilkes-Barre man's retirement plans.

But thanks to careful planning, he's still on course to leave his job as a manager for a construction supply company, he said.

"About a year ago I moved a lot of the money into an annuity," Wills said. "I was getting closer to retirement, so I didn't want something to happen to all the money. ... It was one of the smartest things I've ever done."

Financial advisers say Wills' story exemplifies the importance of having a retirement plan in place and heeding advice to move risky investments to more conservative products as retirement nears.

While the decision to retire may be a bit more difficult in the face of uncertainty, it's important to remember retirement is a journey and not a destination, said William J. Fennie III, investment officer for Fidelity Bank Wealth Management.

Bear markets like this one are a normal part of market cycles and "underscore the need to build and stick to a financial plan," he said in an email.

"Right now, investors should concentrate on evaluating their risk tolerance and making sure their asset allocation fits their goals, time horizon and unique circumstances," Fennie said.

That doesn't necessarily mean eliminating all risk, several advisers said.

"We have had events like this before and the market has always recovered," said Peter D. Shelp, a certified financial planner with the Kingston Retirement Group of Janney Montgomery Scott LLC. "You have to get through it, and you have to try not to panic."

Financial markets have bounced back from every "disaster du jour" even though each at the time may have seemed like the end of the world, added Lou Ingargiola, president of I&M Wealth Advisors of Dunmore. .

"Look at history, not the headlines," Ingargiola said. "That's how we can navigate this crisis."

David Mitchell, a certified financial adviser with Forthright Wealth Planning in Nanticoke, and his father, Walter Mitchell, a chartered financial consultant and owner of Mitchell Financial Group in Kingston, said that's particularly important for young investors in their 20s and 30s.

David Mitchell said he also advocates for older clients to keep part of their money in more aggressive investments, so long as they don't need the funds to live off right now.

Some people have pensions or Social Security to meet immediate needs, he said.

"It's not as important for them to reduce risk as people who are very much reliant on investments to provide them a stable income," Mitchell said.

Deciding when to move to a more conservative portfolio is tricky. Walter Mitchell said he advises clients to follow the "rule of 100" -- subtract their age from 100. The number represents the percentage of investments that should be in riskier products. For a 57-year-old, that would be 43%, for instance.

While that's a good rule of thumb, investors must consider a multitude of other factors as well, financial advisers say. Among the most important is how soon they need to tap their investments once they retire.

Although any 401(k) likely took a hit during the market free fall, most people don't remove all the money from their account immediately upon retirement, Ingargiola said.

People who were planning to retire this year would have ideally set aside enough "living money" to see them through at least 12 to 24 months without having to touch their investments in any case, he said.

Wills said between his and his wife's Social Security and the annuity, they'll have enough to cover about 70% of their bills. Because of that, he doesn't have to touch his 401(k) money. Despite the volatility, he decided not to make any changes to the portfolio.

"Even though I got whacked ... I'm not concerned," he said. "I don't need it now. It will all come back again. It may not happen today or tomorrow, but it will be back."

Above all, when making decisions, the most important thing is to not let emotions cloud your judgment, the advisers said. They acknowledge that's easier said than done.

"Psychologically we are wired to get out of investments when they are down in value," David Mitchell said. "If a person cashes in and moves to something safe because they can't stand the pain of seeing ups and downs -- specifically the downs -- they are not going to get the best result in the long term."

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