Just as my husband and I, both recent retirees, began drawing down our retirement savings, we’ve been hit by the barrage of nerve-racking news reports — from 9% inflation and rising interest rates to stock market gyrations and recession warnings. I called my financial adviser to ask how worried we should be.
Like many current and future retirees, we are eyeing our investment accounts daily, worrying how seriously the current market losses and global economic upheavals might erode the savings we’ve projected to see us through our remaining years.
We weathered the volatility of the 2007-09 recession, so we have had experience with a devastating market downturn turning into a robust market rebound. But that was a dozen years ago, when we felt we had enough time and employment income to help us recover any losses. Now, with our income reduced to payments from Social Security, a few pensions and returns on investments, we haven’t been feeling as confident.
When I called our adviser, I needed reassurance.
Think about the long term
“We are investors, not traders,” he reminded me. My husband and I are in our 60s and in good health, so we’re planning for at least a couple of decades of life ahead. With that perspective, our adviser noted, it’s critical to maintain a long-term approach to our investment strategies.
As retirees, he told us, we should divide our savings into two categories: Cash we will need for immediate living expenses today and tomorrow, and investments that will grow our savings to sustain us for those decades to come. How many decades? Statistically, life expectancy today in the U.S. is just under 78 years, but many people are living into their 90s.
What does this mean for investors in their senior years? It means we need to be both educated and balanced in our investments, suggests a recent study from Boston College’s Center for Retirement Research.
Also see: Three things to take care of when you retire—your future self will thank you for it
Understand the risks you face
The study’s author, Wenliang Hou, now a quantitative analyst at Fidelity Investments, said understanding the relative value of risks is key to a good retirement, and he laid out five essential perils retirees face: “outliving their money (longevity risk), investment losses (market risk), unexpected health expenses (health risk), the unforeseen needs of family members (family risk), and even retirement benefit cuts (policy risk).”
Hou’s study, “How Well Do Retirees Assess the Risks They Face in Retirement?”, contends that most people worry too much about short-term market fluctuations while underestimating their potential lifespan and future healthcare costs. He said longevity risk should be the most critical worry for people saving for retirement, followed by health and market risks.
In other words, we should plan for a long…
Read More:You’re worrying about the market, but it’s just one of the 5 big perils
