How to plan for a ­comfortable retirement in a volatile market

While the recent rate cuts by the Federal Reserve may be easing the minds of borrowers, talk about further rate cuts and a possible economic downturn may have many retirees feeling like they are in a pinch.

So, what is the best way to plan for retirement in today's falling-rate environment?

First things first: don't panic. In a volatile market, turning solely to cash may seem tempting for stability, but it is important for all retirees and soon-to-be retirees to stay in the markets. Inflation over the last 20 years stands at 2.1 percent, cutting into the value of liquid savings and reducing overall returns. Maintaining a long-term focus, and remaining invested in the markets, helps your purchasing power and positions you best for long-term growth.

If the stock market plays a big role in your retirement plan-which is the case for most people- one of the most important things you can do to mitigate risk is to diversify your portfolio. Work with a financial adviser to review your asset allocations and determine a strategy that best fits your time horizon and investment objectives. The goal is to create a portfolio which has a proper asset allocation and prepares your money to last throughout your retirement.

That being said, having a cash flow strategy is equally, if not more, important for those on the cusp of or in retirement. Cash flow strategies provide you with an income stream for your regular expenses while conserving your nest egg for potential future gains.

You become much more sensitive to market volatility once you retire, particularly if your income is dependent upon market returns. Retirees are living longer today than any other time in history. Ample cash flow will be critical during this stage of life. In fact, research shows that 50 percent of married couples aged 65 today will have at least one spouse reach the age of 90, and 90 percent of those married couples will have at least one spouse reach the age of 80.

Most experts recommend 3-6 months' expenses in savings on hand while you are working. Once you retire, the correct cash flow plan will help you plan for one or more years' expenses in cash, cash equivalents or projected income stream, leaving your long-term investments alone. This approach will help you weather an average bear market.

Retirement can last 30 years or more, which means your money also needs to last that long. Yet it is common for people to retire without a cash flow strategy. This can cause them to liquidate assets when funds are needed without consideration of how market volatility may affect their long-term goals. Setting funds aside in cash equivalents for short-term expenses will give you confidence during a volatile market, knowing your money is shielded from market variation. Utilizing a cash flow strategy and maintaining long-term allocations can also help you stay ahead of inflation and preserve purchasing power during retirement.

In sum, those currently planning for, or in the early stages of, retirement should focus on developing and maintaining a sound financial and investment plan which will help avoid the turbulence of the market. A trusted financial professional with a fiduciary standard can work with you to complete a cash flow strategy, help you better navigate the peaks and valleys of volatile markets, and live out your retirement years exactly as you intend.

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Susan Herendeen is a senior fiduciary officer with ESL Trust Services, where she provides strategies and tools to help clients and organizations reach their estate planning and financial goals.

Published: Tue, Oct 08, 2019