Planning for Retirement: A Goals-Based Approach During the Fragile Decade
The Fragile Decade: How to Safeguard Your Retirement Savings
As retirement approaches, the five years leading up to retirement and the first five years of retirement are often referred to as the “fragile decade.” During this time, market downturns can have a significant impact on your retirement savings and withdrawal plans.
In part one of this series, we discussed how a prolonged market downturn during the fragile decade can derail withdrawal plans. The traditional approach of relying on long-term averages to help the portfolio recover may not be the optimal course of action for those nearing retirement.
As you approach retirement, it’s crucial to have a more accurately defined list of spending needs. This is when your investment strategy may need to diverge from the accumulation stage. Balancing risk with returns becomes essential, especially when considering the finite withdrawal stage.
Goals-based planning has gained popularity in recent years, focusing on meeting specific personal goals rather than abstract market return rates. By reframing risk in a more personal way and aligning investments with future spending needs, individuals can better manage their retirement savings.
A safety-first strategy within goals-based planning looks at covering basic financial needs with low-risk investments, such as bank CDs, money market funds, and short-duration government bonds. Other financial resources like Social Security, pensions, and rental income can also provide safety-first withdrawals.
Once basic needs are secured, the remainder of the portfolio can be allocated to cover discretionary spending. This approach allows individuals to decide how much risk they want to take to achieve their aspirational wants, even in a falling stock market.
In part three of this series, specific ideas for mitigating the impact of sequence of returns risk and protecting retirement cash flow will be discussed. Remember to invest wisely and regularly as you navigate the fragile decade of retirement planning.
Please note that this content is for informational purposes only and should not be construed as financial advice. Stay tuned for more insights on safeguarding your retirement savings in the upcoming installment of this series.