Smart Retirement Income Planning When the Market Is Terrible

When the market is rough and interest rates are low, retirement income planning can seem all but impossible. At such a point, it’s easy to actually slip into a depression. I’ve seen it before. But I’ve assembled a list of ideas that just might turn your retirement nightmares into very sweet dreams:

1. Check Your Expectations

Come to terms with reality. If you started your career a few decades ago (or longer) the reality was:

a. A “successful person” retired as soon as possible. The goal was retirement at 62.

b. Folks didn’t live all that long after they retired. If you turned 65 in 1970, you could have expected to live for another 13 years.

c. Most employees had employer-provided pension plans.

Today, we work and live longer. And few of us have employer-provided pensions.

It’s super important to understand that this is no longer the way things are – especially if you are about to retire now. Some people subconsciously think they’re living under the old rules, which sets up false expectations. Sooner or later, folks discover:

a. A 401k is NOT a pension.

b. Inflation is a huge problem.

c. They’re going to live a lot longer than they expected.

d. Medical expenses are through the roof.

e. The stock market is impossible to predict yet treacherous to ignore.

f. Interest rates are laughably low.

Don’t get me wrong…I know that you can survive and even thrive and retire rich. But conditions have changed, and that isn’t your fault.

Don’t take it personally and don’t feel like a failure just because your situation might be more difficult than you imagined it would be by now. Your retirement reality might be different than what you had planned or dreamed. Still, even your worst situation is probably better than what 95% of the people on earth have to deal with. You can do lots of things to improve, but Step 1 is to stop feeling sorry for yourself and/or beating yourself up. Now, let’s continue by making your situation better.

2. Social Security

I’ll admit that I used to counsel my clients to take SSI ASAP. That was BEFORE many of the conditions I’ve described above became reality. Now, if you struggle with cash flow, delay taking Social Security for as long as you can. This can be smart for you now and it’s also a great way to boost Social Security spousal benefits. In fact, if you only start taking your Social Security at age 70, your check will be more than 70% higher than if you take it at 62. That’s a nice bump.

3. Investment Strategy

Investors have had it rough over the last 10 years and that’s a long time. I can understand why anyone would want to dump their equity investments and pile into bonds. But I’m not a huge fan of this approach. I say this for a few reasons:

a. Interest rates are low so it doesn’t make sense to lock into bonds now.

b. If you change your investment strategies because of your emotions (fear) you’ll react again when conditions change. This is an absolute recipe for failure. You’ll sell your equities when the market tanks and you’ll buy them back when they’ve recovered. Buy high. Sell low. No good.

I suggest you invest differently. Your strategy should fit your long-term financial needs and goals – not how you happen to feel that day or (worse) what some “shmo” on the radio or T.V. feels that day.

I’ll admit that I’m not a “buy and hold” guy and I’ve discussed this before. I think a more dynamic strategy does make sense – now more than ever. But even if you don’t agree with me…think before you do anything. And remember one thing…friends don’t let friends buy bonds when rates are low.

4. Be Flexible

This may be tough, but if at all possible, your very best bet is to reduce withdrawals when the market drops significantly. (Read “Bear Market Withdrawal Strategies.”)

I know that not everyone can afford to do this, but even very slight decreases can have huge benefits. Sure you might have to go out less often and vacation in San Francisco instead of Paris this year. But at least you won’t have to move in with your children 10 years down the road and eat Chef Boyardee for the rest of your life. As an added bonus, you get to visit Alcatraz…in a good way.

5. Forget about Immediate Annuities

An annuity payout might look great to you right now. But you’ll kick yourself if you actually buy one at this point. You’ll give up access to your capital and lock in a terrible return on your money.

6. Talk

You may have promised your children or grandchildren money for college that you no longer have. That doesn’t make you Dr. Mengele.

You may feel terrible about this but you shouldn’t. Again, it’s not like you blew the money in Vegas (I hope). Situations have changed and that was beyond your control.

Talk to them. State school is fine. In fact, there are ways your kids and grandkids can get a very expensive college education for cheap. Don’t feel guilty about giving them less than you had planned. Whatever you give your children and grandchildren will likely be much more than you ever got from anybody.

7. Make a New Plan

Things are rarely black and white. You have lots of options which may include working longer, reducing your expenses, tapping into your assets or a combination of all three.

Make some financial projections that are based on your current situation. If you’d like help, you can hire a planner to run a plan for you.