Portfolio Management Doesn't End in Retirement

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You probably hoped that retirement wouldn't involve homework. But if you want to keep your retirement portfolio in shape, you'll still need to pay attention to its management once you leave your job.

How the market moves while you’re in retirement can greatly affect your savings and your standard of living. Your task is to keep your finances in good shape through all kinds of market cycles.

Explore Four Strategies to Weather Market Fluctuations

Reassess risk tolerance. Emotional comfort and personal goals are factors in determining individual tolerance for risk. But as you age, you will likely want to assume less risk since you no longer have the leeway of time to ride out unexpected losses. Once retired, where you are on the risk-tolerance continuum shifts from protecting savings to maximizing income. Revisit your risk tolerance and rebalance within asset classes or cast off holdings where necessary. However, depending on the age you retire, consider how long you expect to need your retirement assets for financial support. Often, with an expectancy of living 20+ years in retirement, it is still appropriate to invest in strategies that have the ability to produce returns in excess of inflation over time.

Adjust spending. A familiar “formula” has been to limit the first year’s portfolio withdrawal to 4% of the total portfolio and then adjust for inflation thereafter. But this model doesn’t address individual circumstances such as life expectancy, medical costs and rising taxes; thus, building flexibility into your portfolio is essential. Scrutinize your consumer habits and the ways you may be wasting money. It’s likely that you can live contentedly on less. Use the "How Much Can I Save in My 403(b) or 457 Plan?"  and the projected retirement expense calculators to help plan.

Here's an example of how much money you might be able to withdraw from your savings each year, depending on how long you need the money to last. The chart assumes a $200,000 nest egg that earns an average annual return of 4%, with an average annual inflation rate of 3%. Note that this is for illustration only; your returns and maximum withdrawal amount will vary.

If the money needs to last: Maximum annual withdrawal amount is:

Minimize taxes. Living in retirement means wisely managing your tax liability. Consider the tax implications of distributions you take from your 403(b) or 457 plan. Understand what portions of these distributions are subject to taxes and factor those amounts into your ongoing budget. A retirement plan distribution may push you into a higher tax bracket, so talk with your tax advisor to devise a strategy for tapping taxable and tax-advantaged investments.

Rebalance your portfolio. As you were planning your retirement, you created an asset allocation strategy. Over time, market swings may have shifted the original mix of your holdings. Rebalancing brings your portfolio in line with your intentions and helps reduce your exposure to risk. But balancing is only half the task. It's wise to keep on an even keel by diversifying within the major asset classes as well as among them.

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To help ensure that your retirement savings last as long as you need them, consult with a financial advisor.