This is an unsettling time for anyone, but particularly if you have money in the stock market and you’ve recently retired or plan to soon.
Carl Carlson, CEO of Carlson Financial, said it is important to make sure you have an adequate amount in safe investments. Now hopefully this has been part of your plan as you were/are approaching retirement, but there are a lot of people who haven’t made any changes to their 401(k) allocation since they first set it up, and that might have been when they were 24.
We’re in a tough environment right now, interest rates all around are very low so it’s hard to find something safe that’s yielding a decent return, Carlson said. Fixed index annuities are one example of a safe investment that has downside protection, but also participates in market returns to some extent.
Carlson said short-term government bonds are another option and they won’t have as much interest rate risk as longer-term bonds will. There are other cash-like investments that might have a little more liquidity, but probably not much in the way of yield.
How much should someone have in safe investments? It depends on the person, Carlson said. No matter who you are, to the extent you’re going to be relying on investments for income in retirement, you should have two years or so in safe money, minimum. That way you don’t have to sell stocks when they are down for you to meet your living expenses. However, for the long-term, many people should have more safety than just a couple years’ worth, which a financial professional could help you evaluate, Carlson explained.
Now to making changes to a portfolio. Carlson said to consider how long you have until retirement and how far off you are from your ideal allocation. For some people, reallocating will be more urgent.
In the short-term, things could get better or they could get worse. To mitigate risk, consider putting *some* in safety and have a plan to reinvest in stocks if things drop lower. But you probably should not do that with all of your investments, just in case things go higher.
It’s important to remember, that retirement does not mean the end of your investment time horizon.
Many people in or nearing retirement will still have 20, maybe 30 years to invest, and their portfolios will recover from this, Carlson said.