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6 Steps to Consider if You're Nearing Retirement

| July 20, 2020

Six Steps You Should Consider if You’re Nearing Retirement

The closer you get to retirement, the more concern you probably have regarding your portfolio. If you find that your portfolio is underperforming your expectations, consider taking these steps to help you get on track!

Step One: Review your spending, including the fun stuff, and how it will change in retirement. Get creative!  Look at your credit card spending.  For example, Chase offers a 5% rewards card for your purchases on Amazon.  If you do a lot of your buying there, and spend $10,000 per year, that is now 500 dollars in rewards you can put towards retirement.  In this low interest rate environment, if you can refinance your home mortgage and save, as an example – 300 a month on your monthly mortgage payment, that is now an additional 3,600 a year you can put towards retirement.  It is more important here than ever to take advantage of things like the 401k catch up provision, review your budget for opportunities, and redirect as much of your funds as possible towards your nest egg for this critical 5 year period.

Step Two: Take a step back and analyze what is working and what isn’t working inside the portfolio.  If you have been managing it yourself, you may want to sit down with a professional and get a second opinion.

Step Three: Set aside two years of retirement expenses into what we coin a “volatility buffer.” This means even if the market takes a giant tumble, a portion of your portfolio should be allocated in a very conservative investment that you only draw from in the year following a year of major market decline.  Recent research is showing that this technique can allow you to potentially be more aggressive with the remainder of your funds.

Step Four:  With your remaining allocation – rebalance to an appropriate allocation for going forward.  Don’t try to overcompensate for lost time or be more aggressive than your natural tendency.  These may lead to a vicious buy high/sell low cycle. 

Step Five: With your new contributions and new employer matches, invest more into equities than the above.  Because you now have a reasonable allocation for the bulk of your funds, and you have  set aside a volatility buffer in the event of extreme market downturn, use this opportunity to get a per-pay check dollar cost average into the market.

Step Six: Analyze the role social security can play in “buying your portfolio time”.  It is highly recommended to be cautious in executing this but there are many situations in which it may make sense to turn on at least one spouse’s social security in order to lower the withdrawal rate from the portfolio.  Similarly, it may make sense to accept an initially larger withdrawal rate from the portfolio, knowing that we will intentionally lower that withdrawal rate later once we turn on social security.

Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and  should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate. 

Chris Kampitsis is a registered representative of and offer securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC.   6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000 CRN202509-3179761