Use different approaches for investing before, during and after retirement

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Many of our clients come to us “around” retirement, which could mean the few years leading up to retirement, at retirement, or a few years after retirement. All three of these time segments may require a change in investment strategy. How dramatic the change is depends on several factors, including the current market conditions, outlooks and spending needs in retirement.

For those individuals a few years away from retirement, they are typically the most affected by the current market conditions. If the market has recently had a major downturn, then they often may want to stay more heavily invested in equities (stocks) to recapture any losses or maximize gains before they retire. If the market has not corrected, much like the current environment, then they may want to start filling in the first segment of their income distribution plan. They could do this by shifting some of their investments out of the market in anticipation of using those funds for living expenses in the first few years of retirement. You can’t afford to lose money on assets that you are currently living on in retirement because you may not have time to recoup those losses and therefore would need to alter your lifestyle to account for the lower portfolio value. This is known as sequence of return risk. In my opinion, it happens to be the single biggest risk to retirees. It’s the risk of losses in the early years of retirement, if unaccounted for, that can lead to you running out of money during your lifetime.

My income plans account for sequence of return risk by removing the first 10 years of required income from the market, thereby eliminating the possibility of a negative sequence of returns affecting income. For income required after 10 years, you can start to introduce more risk into the portfolio because you now have a longer time horizon that has the potential to make up market losses from early years.

For those individuals who are ready to retire, they may likely need a complete overhaul of their portfolio, since they are transitioning from saving to spending. This change requires a completely different mindset from trying to maximize returns when you were still working. The focus now is on both early-stage retirement income and late-stage growth so the portfolio can last as long as possible. The focus should shift from rate of return to sequence of return. This is when we build out the entire projected income distribution plan while still accounting for changes in circumstances. Maximum flexibility has to be designed into the plan because as we all know, nothing in life goes the way we plan. I often ask, did everything in the last 25-plus years go exactly the way you intended? When they stop laughing, they understand why we need this flexibility.

Lastly, for those individuals who are already retired, the biggest challenge I face with this group is often getting them to spend enough money. They often have made their portfolios overly conservative out of a fear of losing money, and in doing so they may end up hurting themselves by limiting their income. This is often the result of simply not knowing how much they can take from a portfolio each year and not having a way to measure their progress. I design my income plans so that retirees know exactly how much money they should have every year in retirement. If you don’t know how much you should have, then you can’t possibly know whether or not your portfolio is on track to last throughout your lifetime. This is why retirees underspend. Because they don’t know where they should be, they are frequently stressed out about spending and err on the side of caution and spend too little. Having an income distribution plan that tells them exactly where they should be each year helps eliminates that stress and makes retirement far more enjoyable!

T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax adviser with regard to your individual situation.