Friday, June 26, 2020

Reducing Our Investment Risk in Retirement

For me, a big risk factor in retirement is volatility of investments.  I learned this the hard way in 08/09 when our retirement investments were reduced by over 50%.  For the next few years, it wasn't clear that my retirement was sustainable.   Fortunately, the market and my company stock recovered such that most of the losses were eliminated. 

However, there is a big difference in dealing with downside volatility at 49, which is when I retired, and in my 60s.  There is less time to recover and less options for recovery.   If needed, I could have gone back to work in my 50s.    Returning to work is a much less likely option in my 60s, 70s, and 80s.

Being a financial geek, I decided to test a scenario of keeping 2/3 of our retirement funds in cash, at 0% yield,  and calculating if the combination of  future social security payments, current dividend income, current rental income, future RMD withdrawals,  and current cash was sufficient to cover our annual expenses for 20 years, assuming 3% inflation.  The answer was yes. 

Since I was conservative, e.g. no growth in cash funds and 3% inflation, I feel confident that we can keep a significant amount of cash to minimize the negative impact of volatility without jeopardizing our retirement lifestyle.  I plan to work this scenario with our financial advisor to significant reduce our downside risk during the times of significant volatility.

For more on  Reaping the Rewards, check back Fridays for a new segment.

This is not financial, retirement, nor investment advice. Please consult a professional advisor.

Copyright © 2020 Achievement Catalyst, LLC

No comments: