Reconsidering Your Retirement Goals in a Volatile Market

Swings in stock and bond prices, coupled with high inflation, have had measurable impact on investment portfolios. Here’s what that means if you’re retired—or plan to be soon.

No one welcomes instability, particularly when it comes to investing. When markets are volatile, your natural instinct may be to act. You may be inclined to find a safe haven or seek out corners of the market. Or your instinct may be to simply do nothing until your investment portfolio starts gaining back any losses.

Smart wealth planning treats these typical human impulses as factors to hedge against, especially when market downturns produce painful declines in portfolio values. “It comes down to this: Don’t let the markets control you,” says Bryan Koepp, Wealth Planning Executive at Regions Bank. “Instead, control the markets as best you can by identifying your priorities and objectives.”

While this advice applies to investors of any age, it is particularly relevant to current or soon-to-be retirees, or anyone who is questioning their retirement plans due to recent market downturns. Wealth management is an ongoing process. A period of volatility, whether it coincides with a recession or not, is a good time to revisit your priorities and, if necessary, to adjust your allocations to stay on track. “Determining the possible and the probable outcomes is the essence of wealth planning exercises,” Koepp says.

What Is Distinctive About Recent Market Volatility?

Market downturns are a fact of life, but what happened in 2021 and 2022, when both the stock and bond markets fell, was unusual. “It’s been an incredibly challenging time, and the worst performance for a 60/40 portfolio since 1937,” says Alan McKnight, Chief Investment Officer at Regions Bank. “It’s rare for the stock and bond market to see negative returns at the same time. Typically, when stocks go down, bonds provide some insulation from the volatility. Negative returns even on well-diversified portfolios are unique in most investors’ experience.”

What’s more, the highest inflation since the early 1980s has left many investors feeling the pinch of higher day-to-day prices just as portfolio values have dropped, and the Federal Reserve’s series of rate hikes have raised borrowing costs.

Despite all that, McKnight points out that the financial picture has improved in some important ways. “Rates going higher always feels bad, and your bond portfolio probably is still suffering. But for a retiree—someone who needs income—you can now buy short-term Treasury bills paying 4% to 5%. You’re generating significantly more cash flow in mid-2023 than a year before.”

Think About Your Goals and Lifestyle

No matter what happens to your investment returns, this period of volatility may lead you to revisit your financial plans with your goals and priorities in mind. “That means balancing performance with purpose,” Koepp says. “Ask yourself, is retiring within the next two years still the most important goal? Are there expenses that will come due, like a child’s education, medical needs or travel goals? If you’re determined to retire when you planned, are there trade-offs you’d make to get there, such as downsizing before you stop working, rather than after?” With the answers in mind, your Regions Wealth Advisor can test a few hypotheses and help you envision your options.

Is the Time Right to Retire?

For recent retirees, portfolio losses can make the transition from the workforce even more difficult. Investment losses just before or after you retire—what’s referred to as sequence-of-returns risk—can have serious implications for your portfolio’s longevity.

McKnight notes that with stocks and bonds gaining in 2023, the financial outlook is brightening for those expecting to retire in the next few years. But when your confidence as an investor has been shaken, you may want to make adjustments, such as putting off retirement for a few years, buying annuities as protection against market volatility or shifting your asset allocation.

“Psychologically speaking, volatility can have a huge impact,” McKnight says. “We’ve seen investors who are a few years from Medicare eligibility put money to cover their coverage gap health expenses into health savings accounts or T-bills.” Solutions that bring peace of mind but also make sound financial sense are the goal.

Have You Accounted for Longevity?

With Americans living longer, the risk of a retirement you planned to last 15 years stretching to 20 or 25 years is real. “If you’re 65, there’s a real possibility that you’ll be here until 90. That’s longevity risk,” McKnight says. “A volatile market is a good time to go back, test your assumptions and priorities, and see what is possible given the financials.”

Longevity risk may lead some retirees to take more investment risks for the chance of higher returns. “We see some high-net-worth families going into private equity,” McKnight says. “The concurrent risk is that they’ll have less access to capital, which is fine, so long as you know that risk exists, and you’re assuming it consciously.”

If your financial plan reveals potential shortfalls over the course of a long retirement, you can reduce spending, downsize your home or decrease the size of the inheritance you’ve planned. In the end, McKnight says, “It comes down to what trade-offs you’re comfortable making to achieve your goals.”

Take Action Today

Whether you’re planning to retire or you’re already drawing down your portfolio, here are three points to consider during or after a period of market volatility.

  • Your risk tolerance is unique to you. The human tendency to do as others do thrives in an age of social media and viral information. Keep focused on your personal appetite for risk and how it aligns with your most important financial goals.
  • Focus on goals rather than short-term performance. Any adjustments to your retirement plan need to support your long-term objectives.
  • Keep doing the work. Stay engaged with your retirement plan and your advisor, and remember that even the best plan requires adjustments over time.

Talk to Your Regions Wealth Advisor About:

  1. Whether your current retirement plans match the current market, your portfolio and your goals.
  2. How you might reconsider or redesign your retirement income plan.

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