Each day in the U.S.,
10,000 individuals turn 65, and the number who cross that threshold will exceed
88 million, or about 20% of the U.S. population, by 2050, AARP International
predicts based on data from the UN Population Division.
Age 65 is an important
milestone for many American workers because it's when many file for Medicare
coverage (at least Part A) and contemplate retirement. Health care coverage is
just one among several key topics to tackle when it comes to retirement. For
many, other topics are top of mind, such as where to live, how to manage cash
flow, how to manage sticky inflation and how to manage investments during
retirement.
In fact, according to
BlackRock's 2022 "Read on Retirement" survey, 64% of workplace savers are
concerned about having enough funds to last throughout their retirement, and 80%
want help from their plans to get through their retirement years, not just reach
retirement.
If you are thinking
about your plans for investing in retirement and beyond, here are 10 strategies
to consider:
- Take inventory of
your spending needs.
- Avoid fear-driven or
emotional decisions about investments.
- Make sure your
portfolio is sufficiently diversified.
- Aim for tax
efficiency in your portfolio.
- Consider annuities
for income protection.
- Mitigate
sequence-of-return risk.
- Hold cash reserves
for emergencies and short-term goals.
- Consider hiring a
financial planner.
- Hold enough equities
in your portfolio.
- Manage your
estate.
Take Inventory
of Your Spending Needs
Fidelity suggests
savers may need to budget for 55% to 80% of their pre-retirement work pay to
cover a variety of expenses throughout their retirement, depending on things
like income, lifestyle preferences and health care costs. For many, Fidelity
estimates that about 15% of their retirement expenses will be related to health
care costs of some kind.
Avoid
Fear-Driven or Emotional Decisions About Investments
The urge to switch
course on investment allocations can be strong at times. Take, for example, when
the benchmark mix of 60% equities and 40% bonds plunged by 17% in 2022,
according to data from Bloomberg. A balanced allocation of this nature is common
among retirees.
Market
volatility is common, and is
often temporary, too. Based on rolling returns of stocks between 1928 and 2022,
investors saw positive returns 88.2% of the time during five-year periods and
94.9% of the time during 10-year periods, BlackRock reports. So, the longer you
stay invested, the greater the likelihood of gains.
Some investors miss out
on long-term, positive returns because they abandon their investment strategies
in times of turmoil. But J.P. Morgan estimates that if an individual maintained
her investment of $10,000 in the S&P 500 from Jan. 1, 2003, through Dec. 31,
2022, her balance would be $64,844. But what if she missed out on just 10 of the
best days in the market? Her ending balance would be diminished to $29,708, a
loss of more than $35,000 in earnings.
"Panic-driven
decisions, like selling investments based on short-term market volatility, are
not a good solution. For example, in 2022, inflation was raging, and the S&P
500 declined about 20%, but since last October, the index has been up more than
20%. So, staying invested and riding out the market declines resulted in a
better outcome than selling at the market low," says Brian Severin, senior
executive vice president and chief marketing officer for Mutual of America
Financial Group.
Make Sure Your
Portfolio Is Sufficiently Diversified
About 25% of Americans
say they do not have an opinion on whether their investments are diversified,
according to a 2019 CNBC-Morning Consult survey of 2,200 adults throughout the
U.S. The same survey also revealed that more than four in 10 Americans do not
actively monitor their portfolios to make sure their investments are
diversified, while only about 34% say they do review their investments for
diversification.
The modern concept of
diversification is often ascribed to the work of U.S. economist Harry Markowitz.
In 1952, he penned an article for the Journal of Finance entitled "Portfolio
Selection," in which he argued that investment risks and rewards are equally
important for portfolio design. Markowitz was later awarded the Nobel Prize for
his development of the Modern Portfolio Theory.
Common asset classes –
like cash deposits, bonds and equities – inherently possess potential risks and
rewards for investors. Portfolio diversification often includes more than just
one type of investment to help investors buffer downside risks and potentially
reap the rewards from multiple investment sources as they manifest over
time.
"Diversification is
beneficial provided that returns aren't perfectly correlated," says Michelle
Cluver, chartered financial analyst and portfolio strategist at Global X ETFs.
"The optimal situation is to combine market areas that respond differently. For
example, equities and fixed income traditionally have a low correlation, as
fixed income can provide a cushion during periods of economic stress where
equities are likely to face headwinds."
She adds that after
diversifying across asset classes, it's important to diversify within each asset
class. Diversify geographic, sector and industry exposures within equities, and
vary the duration, segment and credit positioning within fixed
income.
We at myCIFS know that
investing for retirement can be stressful, is a significant responsibility, and
protecting your family's future should be a top priority. Contact the dedicated
staff at myCIFS.com today to explore retirement options available to you.
To learn more visit:
https://money.usnews.com/investing/investing-101/slideshows/rules-for-investing-after-retirement
