How to Help Clients in or Nearing Retirement Weather a Market Downturn
For those who are nearing retirement or already retired, market downturns and periods of volatility can present particular challenges. These can include a loss of retirement savings and decreased liquidity.
The key to helping clients face those challenges is to ensure that they have the right asset mix to help them absorb the shock of a downturn while maintaining their lifestyle.
Key Takeaways
- For those retired or near retirement, market downturns and volatility can present challenges, including a loss of retirement income.
- A diversified portfolio and a clear picture of risk tolerance are key to maintaining a comfortable lifestyle and sustaining growth after retirement.
- A well-balanced strategy should include liquidity for short-term use and a solid rebalancing strategy for those who have a longer investment horizon and are looking for long-term growth.
The Challenges Facing Clients in or Nearing Retirement
“People who retire at 60 or 65 still have 30 to 35 years of living expenses, so that’s not a short-term proposal,” says Cathy Curtis, the founder of Curtis Financial Planning, LLC. She emphasizes that a diversified approach to investing can offer both short-term liquidity and the growth retirees need to sustain their lifestyles in the future. “We take a bucket approach—a couple of years in very liquid, safe investments, a medium portfolio with dividend-paying stocks and bonds, and a more growth-oriented approach involving a tail-end of stocks.”
Beyond that, it’s about focusing on their overall investing mindset and getting a clear sense of their risk tolerance. “We try to bring it back to a holistic approach,” says Scott Kahan, President and Senior Financial Planner at Financial Asset Management Corp. “We also remind clients that when you experience downturns, it really is a learning experience in how much risk you’re willing to take.” This can ultimately help to shape not only your existing strategy for downturns but also your overall strategy over the coming years.
Strategies Worth Considering
To find out more about the best ways to approach downturns, we asked our experts about the strategies they’re currently using to mitigate risks and keep their clients invested. The two main takeaways we came with were the importance of liquidity for short-term use along with having a solid rebalancing strategy.
“Right now, I’m putting people in shorter-term bonds and staying away from longer-term bonds because I’m a little worried about the interest rate risk,” says Cathy. “Even so, short-term bonds do their job in volatile times because they have a stabilizing effect on portfolios. I’d say most of my clients are in 60-40 portfolios.”
For those who have a longer investment horizon and are looking for long-term growth, switching up the strategy could also be a great option. “Most of the clients who are living on their money have at least five years of cash flow easily available, so we don’t really have to worry about the stock component because it’s a long-term thing,” says Carolyn McClanahan, M.D., Certified Financial Planner at Life Planning Partners. “For our clients who have a longer period of time, we’re rebalancing too, but we’re not buying bonds, we’re buying stocks.”
The Bottom Line
Regardless of the specific rebalancing strategy, the advisors on our panel agreed that targeted advice and a holistic view of each client’s individual financial picture can help you determine the best approach towards retirement. And they also all stressed that this is a wonderful opportunity for communication and education.