Investors who are close to or in retirement certainly should be thinking differently than those who have just started their career, but how?
Dan Keady, chief financial strategist at TIAA, told ThinkAdvisor how three age groups — workers early in their careers, at mid-career and near or in retirement — should be making different investment decisions, and how advisors can select the best routes for them to do so.
Near or in Retirement
Some of these investors who have suffered steep portfolio declines may need to “go back and review their plan,” Keady says. “They may have to work a little bit longer or perhaps spend a little bit less in retirement.”
That said, he points out that those nearing retirement most likely have a balanced portfolio of stocks and bonds, therefore won’t be as affected by stock market moves as more aggressive investors will. He notes they many also have some guaranteed income in terms of annuities or pensions that can be drawn upon before Social Security.
He says they look at three areas: Social Security, and how to optimize those payments; annuities, and if they make sense for client portfolios; and investment portfolios. For those who are still a few years away from retirement, he suggests a Social Security bridge strategy, such as a CD ladder, to cover expenses for three years or so.
“It’s a combination of making sure that those gap years between when a person retires and when optimally [they] start Social Security are covered by using those kind of sources,” he said.
He also points out that those on the cusp of retirement, by having a well-rounded portfolio of stocks, bonds and annuities, feel safer. “That creates some psychological wellness and it’s hard to quantify it, but It’s equally important to the mathematics,” he says.
These years are full of financial obligations, like child-rearing, buying a home and saving for college, but also comes with some of the highest earning years. “It can be an overwhelming time for people, and is a great place when advisors can add value in doing the basics and help clients think through their goals and time horizons,” Keady says.