10 Strategies for After Retirement

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.

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