By Mark Hackett
The market headwinds have been many this year, with high inflation, rising interest rates, and diminishing liquidity causing concerns among investors. For people nearing retirement, these challenges can be even more daunting. A market downturn at the start of retirement, hitting portfolio values when retirees begin to take account withdrawals, can be unsettling, even for seasoned investors.
We’re seeing heightened anxiety among investors, and it’s leading to shifts in behavior. A recent Advisor Authority survey, powered by the Nationwide Retirement Institute, found that around half of non-retired investors feel “terrified” about their financial futures. It’s not surprising to see many investors checking their retirement account balances more than three times per week (53% of women and 34% of men report doing this*).
Economic headwinds and market fluctuations make the anxiety even worse for investors close to retirement. Many near-retirees see their highest portfolio values just before retirement. Due to shorter investment horizons, these investors have less time to recover from portfolio losses.
How should investors respond after this year’s cycle of market volatility has diminished investment returns? The first step is to reassess the income level they expect to need to sustain that income over a long retirement. It’s also vital for near-retirees to be aware of the “sequence of return risk.” That’s when the timing and magnitude of bad investment returns can derail an investor’s retirement withdrawal strategy.
Different cycles of growth and inflation over time tend to favor other asset classes. Maintaining an appropriate asset allocation for an investor’s specific goals and risk tolerance is critical for long-term success. There’s value in staying invested in that asset allocation and not trying to time the market’s ups and downs or succumbing to fear when markets turn tumultuous. Retirement planning is a long-term process with many risks and challenges for investors. Developing a well-designed investment plan should allow investors to handle market volatility without derailing the golden years.