Assets & Answers: Money for Retirement

I’d like to retire within the next five years, but I took quite a hit when the market crashed in ’08. I’ve recovered most of my losses, but what should I be doing now to protect my money so I’ll have enough to live on when I stop working?

[marvin mitchell, president/CEO, compass retirement solutions]
You are not alone with this concern. Another crash like ’08 could force you to work longer than you choose. One of the biggest mistakes I see in people moving close to retirement, or recently retired, is too much risk in their portfolio. As you’re beginning your journey into your retirement years, too much money in the market can be considered a huge gamble. This is the third time in the last 15 years the market has hit an all-time high. The last two times it happened, the market eventually crashed by more than 40 percent. And as we’ve learned the hard way, when the stock market crashes it can take several years to make back your money. If you’re taking income, then you may never make up for the loss.

One easy rule to calculate your level of risk is the Rule of 100. If you subtract your age from 100, this tells you how much risk you should take. So if you’re 60, no more than 40 percent of your money should be at risk in stocks.  The rest should be in a safe place where your principal is protected from market decline. Most importantly, do not attempt to figure this out on your own. Everyone’s situation is unique. There are qualified advisers who are ready and willing to help you maximize and protect your retirement income.

[andrew briggs, chartered financial analyst, plaza advisory group]
Creating a successful financial plan to achieve your goals and objectives within a five-year timeframe requires trust and confidence. This means a sound relationship with a financial adviser who clearly understands your goals and possesses the right toolkit to accomplish them. He or she also has the expertise, knowledge and ability to help you deal with any behavioral biases or preconceived conclusions you might have about the market that could lead to damaging decisions.

The first and most critical step when constructing a sound financial plan for retirement is calculating your ultimate goals and objectives. Given a five-year timeframe, you can develop a solid strategy. The goal is to create a portfolio that enables you to stay fully invested in order to capture the appropriate returns to satisfy your retirement needs. Developing such a portfolio requires dynamic risk management tactics. Risk management typically involves using alternative assets and strategies that help create an uncorrelated return stream with the market to help minimize market drawdowns, such as the one that occurred in 2008.

Finally, it’s important to work with an adviser who can maintain a solid feedback loop to address any issues that may be worrying you. Communication is paramount if you want to create and retain a holistic financial plan and stay as fully invested as possible to achieve your goals.