We have had a wonderfully long bull market which has probably helped to boost retirement savings for those who remained invested, but we still have some ways to go before we beat the bull market of the 1990’s. We may get there, we may not. As investors, we always want to be on the right side of a bull or bear market which is not an easy feat. Do we take the risk and hang in there or do we take gains off the table and play it safe? Of course, the decision is yours alone, but perhaps it may be wise to do a little bit of both.
One way to compromise is to have about two years of required supplemental cash flow in cash or a similar short-term bond fund. When the market bounces, you can remain invested and wait for a recovery. The key here is to know what your required supplemental income is and how much cash you need to feel comfortable.
All too often I see families underestimate how much money they really need or want to maintain a desired lifestyle. I’ve said it a million times before and I’ll say it again: “know your number”. It takes a bit of work and honesty with yourself to figure this one out, but not knowing this one crucial piece of information can make or break a retirement. No one can come up with a realistic number but you. Try overestimating a little instead of underestimating, that way you might not come up short when the unexpected happens-which it surely will. Hey, life happens.
Work with your adviser to determine how much cash you would need easily available for two or three years of supplemental income. This should not include your “emergency funds”- that should remain constant. Maybe you have a pension and Social Security and that’s enough to carry you for now, before inflation. Still, it would be a good idea to have a little extra so you won’t get rattled by a downturn in the market. Some families need more supplemental cash flow because there is no pension or maybe you simply haven’t been able to nail down your monthly expenses yet. Perhaps instead you have a specific distribution strategy like when exactly to take Social Security, draw down on retirement accounts, or do Roth conversions when you need that supplemental cash in the interim.
Having cash could help solve some problems and perhaps give you more confidence that you’ll be okay. Whether markets are up or down, you’ll have what many investors need: time.
We are excited to help you develop your own personalized strategy, one that helps give you confidence about your desired retirement lifestyle. Call us today to get a tune-up on your retirement income strategy. No time like the present!
By Kathy Nolan
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.
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