How to keep your retirement on track in an unpredictable market

Retirees and investors about to retire are under stress this year. Inflation soared to multi-decade highs, stocks plummeted and bonds, a haven in normal times, plummeted. The traditional portfolio of 60% stocks and 40% bonds has experienced one of the worst years in a century.

No wonder retirement investors are so morose. Americans say they need $1.25 million to retire comfortably, a 20% jump from 2021, according to a recent Northwestern Mutual survey. A mid-November Fidelity report finds that the average 401(k) balance is down 23% this year to $97,200. Unsurprisingly, most wealthy investors now expect to work longer hours than initially anticipated, according to a Natixis survey.

“Retirees are feeling the pressure,” says Dave Goodsell, executive director of the Natixis Center for Investor Insight. “Prices are going up and the cost of living is a real factor.”

Investor retirement worries aren’t unfounded, but it’s not all bad. Rather than focusing on last year’s losses, take a longer-term view and think about opportunities to earn and save more over the next 10 years. Whether you’re on the cusp of retirement or well past your working days, exploring new tactics and engaging in solid planning can help you capitalize on future opportunities and perhaps turn some lemons into lemonade.

“You don’t need a miracle,” says Goodsell. “You need a plan.”

Advice for pre-retirees

If you’re still gainfully employed, next year will offer solid opportunities to build your nest egg, thanks to the Revenue Agency’s updated contribution limits. In 2023, investors will be able to contribute up to $22,500 to their 401(k), 403(b) and other retirement plans, an increase from $20,500, thanks to inflation adjustments.

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Employees age 50 and older can save an additional $7,500 beyond that limit. Americans can also contribute up to $6,500 to their individual retirement accounts, an increase from $6,000. The recovery contribution for IRAs remains $1,000. “You have to take advantage of it,” says Brian Rivotto, a Boston-based financial advisor at Captrust, who recommends some clients maximize their contributions.

Stock market returns are expected to be in the single digits for the next decade, but investors can also take advantage of the opportunity to buy stocks at much lower prices than they did a year ago. And bonds are yielding more than they have in decades, creating the opportunity for relatively safe yields in the 5% to 6% range. “This was the worst year for 60%/40% [stock/bonds] portfolio,” says UBS advisor Brad Bernstein. “But the next decade could be phenomenal because of where bond yields are now,” he says.

When retirement is here and now

Naturally, many people about to retire look at their year-end statements with trepidation because they intuitively understand something that academics have studied hard: portfolio losses in the first few years of retirement, when the nest egg is bigger and the withdrawals, can significantly shorten the life span of a wallet.

This phenomenon is known as sequence-of-returns risk, and a case study from the Schwab Center for Financial Research illustrates just how great that risk can be. The study finds that an investor who enters retirement with a $1 million portfolio and withdraws $50,000 each year, adjusted for inflation, will have a very different outcome if the portfolio takes a 15% decline at different stages of retirement. If the recession occurs in the first two years, an investor will run out of money around the 18th year. If it happens in the 10th and 11th years, he’ll still have $400,000 in savings by the 18th year.

To avoid the risk of having to dip into your retirement funds when the market has dipped, advisor Evelyn Zohlen recommends setting aside a year or more of income before retirement so you don’t have to dip into your declining market accounts before the retirement. “The best protection against a streak of returns is not being subject to it,” says Zohlen, president of Inspired Financial, an asset management firm in Huntington Beach, California.

In addition to building a cash cushion, investors may want to consider getting a home equity line of credit to meet unexpected bills, says Matt Pullar, partner and senior vice president at Sequoia Financial Group in Cleveland. “Your house will probably never be worth more than it is now,” he says. “If you have a short-term expense, it might be better to take out that loan than sell stocks that are down 20%.”

There are also smart tax moves investors can take as they retire. Zohlen points to donor-advised funds as a convenient vehicle for affluent charitable investors, especially those who could get a chunk of taxable cash from deferred compensation, such as stock options, just as they retire. “The perfect example is someone who gives regularly to their church and knows he will continue to do so,” Zohlen says. “So, in the year that he retires, he’ll get a bucket of money that he’ll be taxed on. Well, put it in this fund. You’ll get a big tax break in the year you really need it and you can continue to give for years [from the donor-advised fund].”

Investing in retirement

Rising interest rates are a potential silver lining for investors who can now earn significant income from their cash savings, thanks to better rates on certificates of deposit and money market accounts.

Bernstein says he has used the bonds to generate income for his retirement clients, a task now made easier thanks to higher rates. “We’re generating cash flow from fixed income, ideally for clients to live on,” he says.

Captrust’s Rivotto says retirees should consider withdrawing from the fixed-income portion of their portfolio to give stocks time to recover. Retirees also need stocks to provide the long-term portfolio growth needed to support a retirement that could last 30 years or more. “I tend to be more 70/30 [stocks and bonds]and that’s because of the longevity,” says Rivotto, who lives in Boston.

Roth conversions are for any stage

While markets have taken a major hit this year, there are some silver linings for retirement investors. For starters, it might be an ideal time to convert a traditional IRA (which is funded after-tax but has withdrawals taxed as income in retirement) to a Roth IRA (which is funded with after-tax dollars but has tax-free withdrawals). . Roth conversions are taxable the year you make them, but your potential tax burden will be lower for 2022 as the stock price has declined. There’s even an added benefit to doing it now, before the Trump-era tax cuts expire in 2025 and individual income tax rates return to pre-Trump levels.

Of course, an investor must have cash on hand to pay the taxes associated with a Roth conversion. Sequoia’s Pullar suggests that clients perform a Roth conversion at the same time they create a donor-recommended fund, which “can ease that pain through the tax deduction.”

Another option is to do a partial conversion. Your immediate tax burden will be lower, and the Roth account may prevent you from moving into a higher tax bracket in retirement, as withdrawals will be income tax-free, Zohlen says.

A conversion may also be a smart move for investors planning to bequeath a Roth IRA to children or grandchildren, especially if they’re in a higher tax bracket, the advisers say. Under current rules, heirs have a decade to withdraw assets from an inherited Roth account. UBS’s Bernstein says he’s made a number of conversions this year for his clients. “Leaving your kids a Roth IRA that they can grow over a 10-year period, that’s fabulous,” he says.

Spend it down

Lower stock return expectations over the next decade, combined with longevity risk, are one reason some advisors are taking a more conservative approach to retirement rates. The so-called 4% rule, which refers to the idea that you can spend 4% in your first year of retirement and then adjust that amount for inflation in subsequent years without running out of money, had been the gold standard that financial advisers used when planning for clients.

“In recent years, we’ve moved from 3% to 3.5% as the safest withdrawal strategy,” says Merrill Lynch consultant Mark Brookfield. “We believed equities would need to perform much better over time than expected for a 4% pick rate to be effective.”

No matter which withdrawal strategy you choose, establish and stick to a budget, says Zohlen. This can have a big impact on the success or failure of a retirement strategy. “What makes the 4% rule work is letting the money in the account work,” she says. “To me it’s not, ‘Does the 4% rule work?’ It is: “Does the customer’s behavior allow us to rely on this?” “

Finally, don’t get carried away by the ups and downs of the market, says Pullar of Sequoia. Perspective, he says, is an underrated part of retirement planning.

“This is my third time dealing with this kind of market volatility,” he says. He remembers proposing to his wife just as the 2008-2009 financial crisis hit. “I was thinking, ‘Oh my God, what am I going to do?’ What I didn’t realize was that the next two years created great opportunities.” Today’s retirement investors are likely to look back 10 years from now and come to a similar conclusion. As Pullar notes, “Right now, it’s hard to see.”

Write to Andrew Welsch at

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