Retirement Weekly


Volatility, rising interest rates and high inflation have investors worried

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Retiring is usually accompanied by celebrations and relaxation, but recent market volatility is adding a measure of doubt for those nearing or at the start of their retirement. That volatility, coupled with macroeconomic factors such as rising interest rates and high inflation, has many investors worried about their retirement funds and wondering what they can do to weather the storm.

Over the past year, an estimated  1.5 million retirees  have re-entered the U.S. labor market due to such factors as more flexible work arrangements, rising costs and the inability to keep up while on a fixed income. Additionally, according to the  BMO Real Financial Progress Index , 25% of Americans feel they have to delay their retirement plans, primarily due to disrupted savings resulting from increased prices and market instability.

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During this period of extreme uncertainty, near-retirees may be second-guessing if now’s the right time to stop working. But a down market shouldn’t cause interference with or delay retirement. By following the tips outlined below, impending retirees can stay on track with their plans, retire with more confidence and reduce the effect of a down market on their retirement portfolio.

Re-evaluate your risk tolerance

Early in one’s career, there are opportunities to take relatively more risk—for instance, investing more heavily in stocks with higher growth potential and risk, or investing in high-yield bonds. In a well-diversified portfolio, risk should primarily be measured by volatility rather than its most intuitive definition—permanent loss.

If a diversified portfolio is tailored to individual needs and objectives, its riskier portions should be diversified to minimize the risk of total loss and the negative impacts of volatility. Generally, as individuals get closer to retirement, their portfolio’s makeup may change to ensure they’re able to recover if the market goes south. Market downturns early in retirement, when assets are being used to support lifestyle, are more harmful to a portfolio’s value over time than downturns later in retirement.

Rules of thumb, such as subtracting your age from 110 to determine the proportion of stocks in a portfolio, may not apply to one’s specific circumstances. Retirees with larger pensions or other fixed cash flow relative to total living expenses may be able to take more risk than others of similar age. This may also apply to those whose lifestyle spending will require a smaller percentage of retirement savings.

It’s generally a good idea for those nearing retirement to increase the percentage of a portfolio’s allocation to lower-risk investment choices to create a balance between protecting what you’ve already accumulated while allowing room for future growth. Given the market’s current conditions, it’s important to talk with an adviser to determine how to adjust your portfolio to lower risk and avoid realizing permanent losses by selling assets that already have declined. A conversation with an adviser also makes sense if you’re unsure where to start.

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Don’t put all your eggs in one basket

Unfortunately, no one can predict what’s going to happen in the market, certainly in the short run, regardless of your level of expertise. Volatile times provide individuals the opportunity to revisit and re-evaluate their portfolios.

Spreading your money out across several different types of assets can lessen the impact of a market downturn, since different assets usually respond differently to market shifts. When doing so, it’s important to ensure your portfolio includes diversified holdings across asset classes and styles of investing, investments that generate income and hedging strategies to provide downside protection.

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Review your cash reserves

Uneasiness in markets can cause individuals to be uneasy about their overall finances. As such, individuals should assess how much cash they feel comfortable having on hand to meet basic needs and unexpected expenses in order to feel more confident when markets are uncooperative. Creating a budget system that tracks monthly expenses can help.

Individuals facing retirement who don’t have a comfortable amount of cash on hand should be cautious about selling assets to raise cash when stock values are down. Keeping enough cash available (i.e., liquid) to cover living expenses for at least a year can help protect your assets in the long run and allow for an easier transition into retirement. But selling assets in a down market may not be the best time to make that adjustment.

Try not to be influenced by your emotions

Market volatility creates a stressful environment for anyone with money in the stock market. For those on the verge of retirement, emotions lead many to sell when the market turns down in an attempt to avoid losses and then buy again after the market recovers and they feel optimistic. But getting the timing of those two decisions right to avoid missing a net gain along the way is historically difficult even for the best of investment professionals.

While it may be difficult, don’t act on impulse and sell stocks when the market is experiencing a hiccup. In the end, it’s hard to predict market behavior—so try not to make any risky or permanent decisions regarding your portfolio when it’s likely that current market conditions are temporary.

Plan, plan, plan—but don’t abandon your plan

From the start of one’s retirement journey until the end, having long-term goals and a solid plan can help ease stress to a degree and keep you on course. An unexpected or extended period of market volatility may tempt you to scrap your plan, but don’t act emotionally. If you’re unsure what to do next, consider talking with an adviser to keep your plan on track. Closer to retirement, there may be appropriate minor changes to your portfolio to reduce risk. But you shouldn’t act emotionally then, either, or make any major changes without consulting an adviser.

With the current market conditions, the road to retirement may not be as smooth as you once anticipated. But it’s important to remember that market downturns don’t last forever. By implementing the proper strategies, working with an adviser and avoiding rash decision-making, individuals can set themselves up for a successful retirement in the short- and long-term. 

Learn how to shake up your financial routine at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation.

David Weinstock is a principal at Mazars, providing business succession, estate, insurance, tax, and investment planning services to high-net-worth individuals and business owners .