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How to Ride Out the Rocky Market When Retirement Looms

The stock market gyrations have everybody talking, and wondering, "What next – how low can it go?" The back and forth, up and down is like being on a tumultuous sea when all you want is to be back safe on the shore.

If retirement is 20-25 years away you can sleep a little better at night, despite the commotion, but for those who are saying goodbye to the 9-5 this year, next or soon thereafter, they may understandably be tossing and turning.

What do you do in this volatile market when retirement is on the not-too-distant horizon?

"Nobody likes to open up their financial statements and see a decline in value from the last time they looked. Just as rising account values fuel dreams of what retirement might be, falling account values can augur in visions of two hour bus rides to buy cat food," says Chris Georgandellis, a chartered financial analyst with Exchange Capital Management.

The best advice for someone retiring soon, "is to not touch the investments and continue to stay in the market," says Vikram Kaul, Chief Investment Officer of NorthStar Portfolio Investments.

Why? Because in a world where the expected mortality rate is lower and people are living longer, savings have to last longer. Living to 95 is not unusual.

"Longevity risk has grown exponentially higher as time goes by and who knows what scientific advance is around the corner which will enhance life spans, so capital markets have to be utilized for ensuring the right rate of return is obtained on your savings as one enters the gold years," he says. Unfortunately this means having to tolerate volatility. "This is something we have to get comfortable with, or we may have to compromise our lifestyles."

Truth is, people who are planning at the end of this year or the next are deep into the "retirement red zone," says Robert Johnson, Ph.D., President and CEO of The American College of Financial Services.

In football, the red zone is when a team gets within the opponent’s 20-yard line and is close to scoring. "The same is true for people approaching retirement. The red zone is within five years. At this time, near retirees should have ‘derisked’ their portfolios by trading out of riskier equity securities and into more stable fixed income securities.

If you’re retiring soon, you shouldn’t have any money in the stock market that you’ll need to spend in the next five years. "It hurts to do this while watching the market rise, but especially at the tail end of a long bull run, the last thing you want to do is watch your savings evaporate in a market downturn," says Rebecca Schreiber, co-founder of Pure Financial Education. Ideally, living expenses for the first three years should be in cash, the next two years’ worth in CDs and bonds, and any subsequent amounts in the market.

Similarly, Damian Rothermel, a certified financial planner with Rothermel Financial Services, has investments in buckets. "For example, funds necessary to live on for the next 3-5 years should probably not be in the stock market at all. We need to accept lower returns, but we are making sure we will not go backwards. The funds needed in 5-10 years can take a little more risk, but not too much. Anything 10 years or more can start to look at more growth oriented investments. This allows us to also ride the waves of the market with more confidence on the funds we are not using for at least 10 years," says Rothermel.

Be smart.

The worst thing you can do is panic. "You might be tempted into emotionally selling at the bottom of the market, locking in the losses and never allowing the portfolio to recover. Revisit your allocation, ideally a few years before retirement, and make sure you have an appropriate plan in place that will allow your assets to grow, with an acceptable level of volatility," says Anthony Criscuolo, a portfolio manager with Palisades Hudson Financial Group.

During the last bout of market volatility in August, John Sweeney, Executive Vice President of Retirement & Investment Strategies at Fidelity says they saw a significant uptick in customers reaching out to their advisors to discuss their financial plans. "Market disruption can be like a health scare – don’t wait until times of uncertainty to have a financial check-up," Sweeney says.

See the glass as half full.

If you’re 65, chances are you could have another 20 years in retirement. "Picking up high quality investments on the cheap today is likely to reward you in the future with attractive returns," says Georgandellis.

Don’t forget taxes.

Market downturns can be an excellent opportunity to trim investments in your portfolio that have not worked out. Investments sold at a loss (known as tax loss harvesting) can be used to offset any realized gains that most long-term portfolios have accumulated over the years. If there are no gains to offset, investors can apply up to $3,000 in capital losses against current income, and carry the rest of the losses forward into the future, says Georgandellis.

Keep your perspective.

You can’t change what you did before the volatility hit. But you can ensure that you don’t make a difficult situation worse by acting in the short term out of emotion. Says Georgandellis, "You’ll have plenty of time to enjoy the scenery even if the near-term outlook calls for rain. You will only need a small portion of your portfolio in the near term. The remainder of your investments need to be there to work for you in the years that come long after the volatility has passed."

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Anonymous   |     |   Comment #1
A few years ago, I read an article (with graphs) that showed what retiring at the outset of a bear market versus a bull market did to a retirement portfolio. It wasn't pretty for the bear market retiree. In fact, it was quite devastating. Large losses at the outset of retirement can be the death knell to a "well planned" retirement. If you're not absolutely sure you can make it down the golden years financial road then DO NOT RETIRE. Once you're gone, you're gone and no one's going to take you back.

Question to advisor? So, when do I panic?
Anonymous   |     |   Comment #12
Solution is don't put a dime in the market......I would not touch it. I have been burned too many times. I will settle for a low rate CD and change my lifestyle. Better than risking a dime in stocks. And bonds are just as risky......They will come along and change the rules and ^%$# us like they did GM bondholders.
Bozo   |     |   Comment #2
Ideally, your retirement should be funded by the "three-legged stool": Social Security, a pension, and savings. Problem being, Social Security doesn't go all that far and pensions (such as they exist, aside from public-sector workers) are seldom inflation-adjusted.

Which means most Boomers (and I count myself as one) will turn more and more to "savings". While I am probably more conservative than most, my "sleep well at night" litmus test was always enough in laddered IRA CDs to retire comfortably, without regard to the ups and downs of the stock market. Mind you, my wife and I still have substantial positions in the market; in all likelihood, they will appreciate "in the long term". That said, "in the long term" we are all dead. In the short term, for retirement, I bank on cash.
Anonymous   |     |   Comment #4
With interest rates so low, there is no way a normal person can retire on the accumulated capital to live of (that is, if you were fortunate to accumulate capital). If you have other assets (houses, boats, cars, gold and so on) you can cash out little by little and pay the bills.
But neither is a 100% solution for a long and happy life, therefore, give your house to the bank in a reverse mortgage and live free for the rest of your life mortgage free. Only money you would need is the credit line from the reverse mortgage to pay for taxes, upkeep and repairs.
SS income should be enough for food and medical insurance. That is what my parents did and they are very happy and wary free
Anonymous   |     |   Comment #5
I consider our family normal...we have no debt...haven't in years.  Use credit cards extensively but pay off each month....continue to use each of them every 4 or 5 months.  Have a security freeze on credit.  Drive 12 and 8 year old cars.  Have a family reunion every other year around the country which we pay about half.  Saving total (all CDs, US ibonds, and cash) have generally remained constant for 10 years and try to live within Soc Sec amount but if needed go into the savings.  It can be done, folks!  Proper Prior Planning Prevents ____Poor Performance.  And use Ken's site extensively!!!!
Anonymous   |     |   Comment #6
Look at the data...this market could easily drop another 20% or more. If that happens, in advance of a presidential election, the US will become a full-blown socialist country overnight. That's not a solution, of course, but it does sound appealing.

I have a 200K CD due in two weeks. This time around I think I'll sit on it for a year or more at 1%, wait for a market "bottom" and then buy the market as it recovers. If I wait for a 20% stock price gain I make $40,000 and pay 15% capital gains ($6000) in taxes. If I invest 200K at 2.5% I make $40,000 in eight years and pay...31% ($12,400) in state/federal taxes because it's considered regular income. The game is rigged, folks, plain and simple.

And that yarn that you can't time the market is hogwash. Every trade (buy/sell) is a timing of the market...as it affects you. Remember, the one word advisors don't want to hear is...sell, unless, of course, they churn your portfolio. Thank heavens for multivariable calculus.             
Anonymous   |     |   Comment #10
I like inverse etf's......This market is going south fast and you can cash in on it. This is what happens when you let communists run the economies of the world.
Anonymous   |     |   Comment #13
China has been the driver of world economic growth for decades.  These communists, at least, have had a better record than anyone by far. 
Anonymous   |     |   Comment #15
Yes because they adopted free market capitalism. They are "communist" in that they are a one-party state.....Not with their economy.
Anonymous   |     |   Comment #18
You better study Chinese economic policies and controls.
Anonymous   |     |   Comment #41
Yeah, calling the Chinese "free market capitalists" is a pretty dubious assertion.
Anonymous   |     |   Comment #8
10 yr treasury hit low today......and sinking fast. Funny that a lot of you jealous  online haters mocked me for getting a brokered CD  18 months  ago at 3.25%......And add to that the market value is almost $2000 more than principal.......Who is laughing now? I win.....You lose.
Anonymous   |     |   Comment #9
#18, could you tell us the CUSIP of your brokered CD that pays 3.25%?  Thanks in advance.
Anonymous   |     |   Comment #14
We mocked you not for getting a brokered CD, but for being such an a*****e about it is my recollection.
Anonymous   |     |   Comment #16
And I will continue being.....expect me.
Anonymous   |     |   Comment #24
What was that CUSIP again?  'Cause, if you can't produce it, I suspect the whole thing didn't happen..
Anonymous   |     |   Comment #27
Look it up yourself.....3.25% brokered CD from Goldman Sachs-10 yr purchased in Sept, 2014.  The market value return is approx. 5% on top of the annual interest.
Anonymous   |     |   Comment #33
Here's one for you...
May 2014
Anonymous   |     |   Comment #26
"And I will continue being.....expect me."

The most believable comment you have ever made here.
Anonymous   |     |   Comment #42
#8 was truthful but the naysayers can't handel the truth. I posted a CUSIP. Want another?
Anonymous   |     |   Comment #11
Market down 368 and dropping......Also dropping like a stone is any chance of a rate increase in the next year. It's over. Everything is over.
Anonymous   |     |   Comment #22
"Everything is over."

Regrettably, you appear to be the exception.
Inforay   |     |   Comment #17
The reason why many of us visit this website religiously is because we cannot stomach the risks involved in the stock market.  Personally, I would rather get 2.5% on a long term CD and get a monthly check, than watch the gyrations of the stock market, day in and day out.  Maybe I am an old fool, but I have learned my lesson.
Anonymous   |     |   Comment #19
Me too.......But I'm tempted to bet against the market with an inverse etf. I remember a story about some guy in 1929 that made huge bets against the market and everyone laughed at him. When it crashed he made millions.....Which today would probably be like billions.
Anonymous   |     |   Comment #20
I'm with you, Inforay.  I cashed out of the market just before I retired almost 13 years ago with no regrets.  I may have missed out on some nice gains, but on the other hand I have had zero losses and have slept well every night.  Still haven't tapped into any of my principal.  If or when I do, at least I will get something for my money rather than see that it had evaporated overnight in the stock market.
Bozo   |     |   Comment #46
With respect to "Mr. Market", the trick is "don't peek". I love my IRA CD ladder. I don't peek at my index funds.
Inforay   |     |   Comment #21
I wonder how many folks read the article posted this morning: https://finance.yahoo.com/news/geithner-gets-jpmorgan-credit-line-100003156.html?bcmt=comments-postb...
Assuming the stock market drops, people like Geithner will dump billions of dollars into the stock market, with borrowed money, so that it, once again, rises.  In the event the stock market collapses, Geithner will walk away, and JP Morgan Chase will get taxpayer dollars to bail it out, because it is "too big to fail."  What is the collateral that Geithner is providing for this huge line of credit?  Did Geithner put in one single penny of his own money into this fund?  Everything is rigged in favor of the well-connected, while we have to be satisfied with puny returns on our savings and CDs.  And this is happening under the political party that decries income inequality!
Anonymous   |     |   Comment #23
When President Obama assumed office I had real, sincere, hope that the filthy favoritism Bush had shown to Wall Street and the big banks would finally come to an end.  Could I have been more in error?  I don't think so.
Anonymous   |     |   Comment #25
I guess this is sorta on topic, can't find another place to ad this.

Was looking at mny mkt rates on Ft Lee Fed Credit Union, they were double what the local SunTrust rates are, but.. I found that FLFCU rates were subject to change "weekly" where ST rates go for 90 days at a time. So the rates may be better, its better to have some kind of steady time period to count on. Too bad, cause I was ready to close the account at ST.  (CD rates at both suck though :) )
Anonymous   |     |   Comment #28
EE bonds double in 20 years?? I didn't know that......But I would not touch them. They pay a tiny rate (I think .10%) now and you're stuck with that rate as long as you hold them. And as far as doubling......Maybe it has worked out well for some recently.......But I would never trust that. I'm sure there is a stipulation somewhere that says the Treasury can change the terms......They will never be able to keep that promise. In 20 years the debt will be so massive it will destroy the country.
decades   |     |   Comment #30
ss = Ponzi scheme ...all these young socialists don't seem interested in paying for my retirement ...cant blame them ...overweight cd's incurs currency/inflation risk ...5% of portfolio to gold/silver...average cost in ....as an insurance policy sleep even better that way......looking for any S&p rally to short like Soros and Jim Rogers..billionaire traders currently short the S&P 500...reasonable stop always ...maybe time to begin nibbling on oil one more spike down would be perfect
Anonymous   |     |   Comment #32
I hear you, but I'm not listening. 

Soros, Rogers and alike, have plenty more where that came from if they misjudge the market.  I don't.  And being retired, comfortably I might add, I do not have years to weather market up and downs or waiting for long recoveries.  A 50% loss requires a 100% gain just to break even!

I have personally seen too many of my retired co-workers forced back into the labor pool accepting menial jobs after loosing small fortunes to Wall Street.
Anonymous   |     |   Comment #31
Fed now tells banks to prepare for negative rates.
Inforay   |     |   Comment #34
I believe that the Federal Reserve will do whatever it takes to prop up the stock market, including another QE, negative interest rates, lending cheap money to hedge funds, etc.  I believe that the Federal Reserve gauges its success by how high the Dow, Nasdaq and S&P go.  We savers are of no consequence.  We are a small group without much clout, so they can steal from us.  I used to write expressing my opinion in their comment section, but would only receive a boilerplate form response.  I have given up.
Hoody   |     |   Comment #35
yes my social security fixed income friends, we have been so conditioned to low rates we get giddy over anything close to 3%, now the next shoe is COLA, there was none this year ( I've seen two 0 COLA years before), and since oil has gone from "peak to "glut" ( for some reason hmm) guess what (and it continues and I don't see why it won't with Iran now pumping all they can into the world market on top of everybody else),  I expect another year of NO COLA, which is another way for the gov to "hold down" expenses while blaming it on those "over producers".

 I assume it could change depending on how many oil Co's decide to shut down their rigs and hope to see a shortage develop, but I bet the SS bean counters are going to keep this going for as long as they can, to have that excuse not to pay anything, while of course everything else that folks need to live is going up in cost, you know all that stuff that isn't counted for inflation, like food, med, rent,utilities, well you know :)

Hy be happy don't worry its the year of the Monkey :)
Anonymous   |     |   Comment #38
And health insurance premiums and taxes!
Anonymous   |     |   Comment #39
Check out the medicare premium Part B costs for "wealthy" recipients. Our medicare and supplement costs are almost equal to our premiums for full health and dental prior to age 65. I laugh when people tell me it's all free when they retire!
gregk   |     |   Comment #40
Medicare is typically about the greatest windfall imaginable for its recipients.  Suffering even one serious illness requiring extended hospitalization and/or intensive treatment will make you aware of that, - and most seniors as they age do much worse.

Why should it be entirely free, - and where lies the injustice of higher premiums for the well off?
Anonymous   |     |   Comment #43
My point was that nothing is ever free. Someone always bears the cost. Medicare is simply a variation of national health care, single-payer or whatever else you'd like to call it for those 65 and over. I have a retired secretary with a gross pension/SS income of $39,800 paying $5,040 in combined medical costs (simple Rx only). Her medical costs are 12.6% of gross income and more than 13.2% of net income. I'm not sure if this can be defined as a "windfall".     
Anonymous   |     |   Comment #50
#43 You fail to say how much Medicare is paying for your retired secretary's medical costs.  It's not, of course, what she herself pays that defines the benefit received, - "windfall" or something less.  Her costs might hypothetically be 50% of income, but if Medicare paid 10 times her premium expenditure over some period (even a lifetime) one could appropriately call it "a good deal" at the very least.
Anonymous   |     |   Comment #44
Since there is no limit on medicare taxes during working years, the "wealthy" pay far more into the system than any other wage class. At age 65, as is true for every other age, I believe medical needs are based on the human condition, not one's income. Higher medicare premiums based on income is just another disguised tax on success. It has nothing to do with health care.
Anonymous   |     |   Comment #47
Oh, cry me a river already!  If a person is wealthy, they can afford the higher Medicare premiums.  The lowest rate Medicare premium is meant for the masses of lower income people for whom higher rates would cause them a hardship. 
Anonymous   |     |   Comment #48
I am not wealthy.  I fail to see why people make the case that because people are wealthy they should pay higher premiums for the same coverage that others receive.  Perhaps they are wealthy because they worked harder, longer, risked more and delayed gratification.  Perhaps others who are less wealthy did not make those same sacrifices.  So, we ignore their sacrifice and say they can afford to subsidize others.  They more government subsidizes and promises benefits to citizens, the more incentive individual citizens have to not take responsibility for their own lives and the easier it becomes to take their hard earned money with rationalizations like "they can afford it".
Anonymous   |     |   Comment #49
Some people have it and some don't.  This is not socialism, there is a difference...you earn it, then you have to spend it.  The 16th amendment decided there need not be direct taxation...thus, get use to it, some pay more!!!  They have it!  And, that may include me! 
Anonymous   |     |   Comment #51
Sounds like you aced Socialsim 101. The rates aren't even progressive. After one dollar more of earnings (see rate table) your premium can jump $600 to almost $900 per year. Make X dollars pay this; make X+1 dollars and you pay 40% more. Anyone who thinks that's fair is ripe for the picking. Socialism knows no bounds, something the Europeans are learning the hard way.
Anonymous   |     |   Comment #52
You are so correct about the huge jumps in premiums because you earn $1 more than some arbitrary income threshold.  Conversely, since the subsidies are based upon income and not net worth, millionaires are getting Obamacare subsidies.  They have modest amounts of money in taxable accounts - which limits taxable income and millions in tax advantaged accounts - which they do not need to take a distribution - so they qualify for Obamacare subsidies.  Go to the Bogleheads website and query the topic.  The "competency" of government - hard earned taxpayer dollars that get redistributed in totally inefficient, wasteful ways.  While we need to take care of people that need assistance, the government is completely incompetent in providing that assistance responsibly and simultaneously providing incentives for personal responsibility.  As long as politicans promise stuff to get votes, this country is in a world of hurt.  John Kennedy is turning over in his grave.  Ask not what your country can do for you, ask what you can do for your country.
Anonymous   |     |   Comment #53
How interesting life is. Today, I spoke with someone who hates Republicans. Coupled to that hatred is a combined family income of around $350K with no deductions due to a life of paying off debts. So, what's their beef? "We pay too much in taxes and without any deductions it's not fair that we pay more than the 1%ers." I could have replied you got what you voted for but I didn't want to waste my time. In my youth I was naive and very trusting. Reagan was right on his first day in office.
“Our Government,” he emphasizes, “has no power except that granted it by the people. It is time to check and reverse the growth of government which shows signs of having grown beyond the consent of the governed.” The old Constitution, with its restraints and emphasis on limited government, allows individual freedom to work for the common good. “In this present crisis, government is not the solution to our problem; government is the problem.”
Anonymous   |     |   Comment #54
During WWII the top tax rate was 92%.  Now it is substantially less.  Your $350K friend should fire his/her tax advisor who could have easily seen the forthcoming situation!  If person doesn't plan then any road will get them there!  For example, s/he could have retired much earlier with a net close to what the net is now!  Shame of having the benefit of that income!
Anonymous   |     |   Comment #55
No one paid that rate and you have no idea what someone else's financial situation is or isn't. Another socialist who wants other people's money.
Anonymous   |     |   Comment #56
Just numbers crunching 101
Anonymous   |     |   Comment #57
That's one of the dumbest things I've read.
Anonymous   |     |   Comment #45
Accelerating downward trend!!
Ten-year brokered CD down again...to 2.3%

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