Six secrets to an easier retirement

Good news, bad news, good news, bad news. There seems to be no shortage of either. Sometimes both can be found all in the same day. Managing investment portfolios by using news headlines as a guide can create some real headaches these days, as no one seems to be certain as to when we will fully emerge from this recession. Those headaches can turn into migraines for individuals approaching retirement.

There are several steps these people can take to try to shore up investments as they near retirement. For those planning to leave work in the next 18 to 24 months, three important options to keep in mind are:

• Understand actual timeline. A person’s “time horizon” may be longer than he or she realizes. Life expectancy is also a big factor. A retirement date is an initial benchmark, but individuals need to keep in mind that their money can still “work for them” after they stop working.
• Give thought to securing a part-time job. It’s important for individuals to keep this in mind. If the start of a person’s retirement coincides with a market downturn, taking maximum distributions from a retirement portfolio can substantially reduce the probability that the assets will last throughout the person’s lifetime.
• Make sure to have a cash reserve. Individuals should build up a reserve large enough to carry them through six to 12 months of retirement expenses. This can buy time for the market to recover. NOTE: it is also wise to give strong consideration to selling long-term investments to raise this cash.

For those with more than two years until retirement, there may be time to take advantage of the old adage, “the trend is your friend.” Markets may go down, but they also go up. Plan for that eventuality in the following ways:

• Increase contributions. Use any extra cash to take advantage of these market dips. Consistent dollar cost averaging helps take the stress out of trying to time the market. Individuals may also want to direct some of those extra contributions into a cash reserve, just in case this decline lasts longer than expected.
• Diversify, diversify, diversify. Essentially, people should not put all their eggs in one basket. Throughout market cycles, different classes, styles and assets with diverse market capitalizations perform differently. Actively managing one’s portfolio diversification can have a greater impact on performance than individual issue selection.
• Make small, gradual changes to asset allocation. Jumping in and out of asset classes in wholesale fashion can magnify mistakes and put a portfolio into reactive mode. Moving small amounts of money (five percent or so at a time) allows people to take advantage of a trend without betting the farm.

Most of all, flexibility and patience are virtues in the world of portfolio management. Don’t fall in love with a retirement date, and don’t be frustrated by day-to-day market swings. Above all, if an individual has questions or concerns, it is advantageous to seek the advice of an experienced professional.

Professional advisors can offer objective, educated and customized guidance. An advisor is a rational and knowledgeable resource who can provide valuable perspective in tumultuous times. They may not be able to provide everyone with the news they want to hear, but they can help maximize and leverage the assets individuals have against their personal timelines and goals. . . which is much more strategic than basing decisions on the latest market or news announcements.

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Meg Armstrong is a vice president and wealth advisor for UMB’s Investment and Wealth Management division in Denver. Meg may be contacted via email at [email protected].