If you’re nearing retirement or are currently retired, it’s more important than ever to carefully choose how to allocate your investments to balance risk and reward.

It is possible to save for decades to build a “nest egg” only to have it significantly eroded in a short period of time and completely change your financial possibilities in retirement. There are two examples over the last 20 years that highlight that risk. Between March of 2000 and October of 2002, the S&P 500 declined by over 37 percent. From October 2007 through February 2009, the S&P 500 declined by more than 49 percent. Your asset base would have been further eroded had you been taking withdrawals during those periods. After a loss of 50 percent, an investor would have to have the same investment earning 100 percent just to get even.

Unlike younger investors who have time to recover from a big loss, individuals nearing retirement could potentially be forced to postpone their planned retirement date if they experience the same serious loss of retirement security. Therefore, it’s important to select the right advisor who can analyze your current situation and make quality recommendations.

Portfolio Analysis and Recommendations

A quality advisor will look at three things when analyzing and making recommendations to a customer’s portfolio.

  • Financial Situation: Any analysis must start with understanding the client’s personal financial situation. What is their net worth and sources of income? What types of assets does the customer currently own? What does the ideal retirement look like to the client and can their investments provide enough income to reach that goal?
  • Risk Tolerance and Investment Experience: An advisor must take the time to really understand the risk tolerance of any customer. There are risks to assets that have historically provided higher rates of return, but also have risks of significant short term losses. Other lower risk assets can provide stability, but are limited in their ability for growth and keeping up with inflation. The role of the advisor is to educate the customer on their options so together the customer and advisor can come up with the right allocation.
  • Market Knowledge: Every customer should expect their advisor to provide well thought out guidance regarding current market conditions. This includes interest rate policy, tax policy, economic conditions, equity market conditions and any relevant geo-political factors. For example, the current trade dispute between the United States and China could have significant implications for the world economy, world equity markets and possibly the interest rate policy of the United States Federal Reserve.

When you’re within 10 years of your target retirement age or are living in retirement, it is critical that your portfolio be properly allocated so your investment portfolio can sustain you through retirement.

Other Factors to Consider

While one of the biggest factors to consider when investing for retirement is your time horizon – how long you have until you will rely on the invested assets and returns – there are other important factors to consider when deciding how much risk to take.

Some important factors to consider when deciding on an investment plan:

  • Health Care Costs: A number of studies have estimated that a couple at age 65 will need to pay more than $250,000 out of pocket over their expected lifetime to cover medical expenses. That number could rapidly rise if there arises a need for a care facility over a number of years.
  • Income Stability: Often, retirees depend on a pension from their employer. In many cases, if the employee passes away, the spouse’s benefit may be reduced or eliminated altogether. Income from farmland or real estate investments could decline during times of economic difficulty. It is always important to understand your source of income and have a plan in place for a possible change in your income stream.
  • Costs and Fees: There will always be costs and fees when working with an advisor. It is important that those fees are transparent and you feel you are getting value out your relationship with your advisor.

Every investment portfolio is unique and should be tailored to the investor’s needs, goals and situation. It’s important you work with an investment advisor who understands market conditions as well as your unique situation to present the option that best works for you.

Next steps:

  1. Contact me if you have questions about investing for retirement.
  2. Learn more about Bankers Trust’s Investment services.
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Jason Egge is a registered representative with Securities America, Inc. Securities offered through Securities America, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Bankers Trust, BTC Financial Services, a division of Bankers Trust, and Securities America are separate companies. Not FDIC Insured • No Bank Guarantees • May Lose Value • Not Insured by any Government Agency