“Good timing is invisible. Bad timing sticks out a mile”–Tony Corinda
I am sure there have been times in your life when you have changed plans because the “timing just wasn’t right.” Maybe it was buying a new home or vehicle, maybe it was even starting a family. You had control over these decisions, and you waited until it seemed like a better time for these events in your life. But what happens when all of a sudden, after years of dreaming and planning, your upcoming retirement seems like it couldn’t happen at a worse time! You are thinking, “my 403(b) is in shambles! How can I even think about retiring in the near future?” Here are three steps that all teachers should take:
#1: Come up with a “Game Plan” for all scenarios
Sounds complicated, doesn’t it? It doesn’t have to be. You have more control than you think, especially if you are rolling over your 403(b) into a traditional IRA. In general, traditional IRA’s have a lot more options when it comes to investing. More specifically, we like to say, “this is NOT your father’s stock market!” What does that mean? As many of you have unfortunately realized, the “buy and hold” strategy that used to work in the past has not been as effective as of late. Buying and holding for some has been “buying and losing, and losing, and losing…” So what is the alternative? Many financial advisors today use a type of money management where their clients’ portfolios are consistently monitored and adjusted according to various indicators of market performance. These portfolios are much more dynamic and react to the changing times.
Does this mean that losses are never seen? Of course not. However many times the losses are mitigated. It is like having a life jacket on: it can aid in keeping one “a-float.” A lot of you may be thinking that you should just “sit tight,” and not make any changes when changing to one of these platforms could help in getting you in and out of the market at more appropriate times.
#2 Don’t consistently take distributions when the market is down
So, if I were to ask you, from 2000 until 2017 what you think the stock market averaged each year, what would you guess? If you said close to 7% on average, you would be correct. So why should it matter that much if you start taking let’s say a 4% or 5% distribution each year if the market is averaging 7%? You should be ok, right? No! The math does not work that way. The stock market does not earn 7% every single year. Some years it’s up, and some years it’s down. The reality is if the market is down at the wrong time, like the beginning of your retirement, and you start to take income from your accounts anyway, you could end up in Big Trouble!
This is a real danger which is called “Sequence Of Return” risk. Simply put: It is the risk of early declines and ongoing withdrawals impacting your spending during a certain period of time, most often in retirement. There are ways to combat this risk! You may need to get creative, but mitigating this risk is possible.
#3 Secure Your Income In Retirement
The word “annuity” used to strike fear in the hearts of men (and women), and for good reason. There have been horror stories of little old ladies who had all of their money unavailable to them when they needed it most. Fortunately, the annuity products available today are much different than those in years past. Depending on your situation, an annuity can be an important part of your retirement distribution plan.
For example, a client of mine took a portion of her husband’s life insurance proceeds and purchased an annuity. At age 63, she quite likely could live another 25 plus years. The purchase of the annuity with an income rider, gives her a steady monthly income, which adjusts annually for inflation, for the rest of her life. If she “outlives” the money, the insurance company will continue to pay out her monthly installments. In other words, even if her account balance is zero, she will still get paid. If she passes sooner, the money (principal+growth-withdraws) will skip probate and go to her beneficiaries. This guaranteed income gives her peace of mind knowing that no matter what the market does, she will have this income. Designating a portion of your nest egg for this purpose could be something that could work for your retirement plan.
I am finishing this article as I hear President Trump again address the nation on the Corona virus.
Today the market broke another record. This time, it was a good one: the highest increase in one day! Records, both good and bad, are broken one right after the other lately. We live in crazy times! You sure didn’t visualize retiring as a world pandemic was occurring, or the first real bear market in over ten years was taking place. However, take heart! Timing is everything, but there are things in your control that can make this a much better “time” than you thought if you are ready to retire.
