OCEAN CITY – The human cost of the market downturn can be measured in the number of lives and plans that have changed as a result. With the S&P 500 down nearly 40 percent over the course of the last year, many investors have seen the value of their retirement savings drop. Even those who are years away from retirement are beginning to wonder whether they will be able to live the post-career life they envisioned. The good news: there are ways to keep your retirement savings goals on track.
Four strategies to discuss with your financial advisor:
— For starters, retirement-focused investors should take stock of where their plans are right now, says Vince Grogan, Director of Marketing with the Retirement Group at Merrill Lynch. "Work in collaboration with your financial advisor to gather information on all your assets from your various accounts. That way, you can build a holistic view of how your funds have withstood the market thus far and determine whether your total asset base is allocated effectively," he explains.
Once you’ve taken this inventory, your proximity to retirement becomes relevant to the conversation. Ask yourself: Are you in position to weather a longer period of volatility or are you close enough to retiring that you’re ready to think about establishing a guaranteed income base? Once you know where you stand, you will be better equipped to develop an effective portfolio recovery plan.
— Consolidate accounts. "The process of gathering and reviewing your assets may bring to light just how many savings buckets you have to manage," Grogan notes. "Allocating assets and managing risk is logistically that much more difficult when you’re managing multiple pools of scattered assets." You may well be able to make fewer accounts work harder for you, and you could find it easier to respond to shifting markets. — Whether you are near retirement or already retired, it’s time to start considering what portion of your assets you can dedicate to an income stream. Factors such as how soon you plan to retire and the amount of assets you’re prepared to commit to this strategy can help you determine the best approach for your goals.
"Bonds, Treasuries and CDs all can create income, especially if you stagger maturity dates," says Grogan. "Annuities and dividend-paying stocks offer two strong ways to obtain regular yields and achieve growth through exposure to the equity markets. And remember a paycheck is another form of regular income.”
— Every retirement-focused portfolio needs a long-term growth component, according to Grogan. "While it’s important to avoid taking imprudent risks in an effort to play catch-up, you also don’t want to leave yourself without growth opportunities. Hiding in a heavy cash position, even if you’re decades from retirement, can have you coming up short when it’s time to depend on your savings in a retirement that could last for 20 years or more," he cautions. If you decide to increase your equity exposure, "you want to do so in very high-quality, dividend-paying stocks," advises Richard Bernstein, Bank of America Securities-Merrill Lynch Research Chief Investment Strategist. "Compounding of dividends can help you restore your wealth over the next three, five, seven, 10 years.
(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)