War in Ukraine, record-high inflation, and impending interest rate increases are making people justifiably nervous about whether their long-term investment portfolios will meet their retirement needs. But investors shouldn’t let the current headlines dictate their long-term investment decisions. Over at Kiplinger, registered investment advisor and co-creator of Wealth With No Regrets Barry H. Spencer offers six tips for mitigating anxiety when investing for retirement.
1. Don’t Act on Knee-Jerk Impulses
Spencer notes that financial news programs are designed “to stoke fear because fear gets viewers and readers,” so investors should be very wary.
“If you listen long enough or read lots of negative financial news, there’s a greater chance that you’ll end up making an ill-advised, poorly timed decision about your investments,” writes Spencer. “Instead, let the curiosity that media sparks lead you to search out personalized advice.”
2. Separate Money Between Short- and Long-Term
Some financial advisors will tell their clients that if they have $1 million, they’ll be fine withdrawing a percentage of that money each year. However, Spencer warns that this approach can lead retirees to believe that it’s all one pot of money that works just the same, regardless of what type of account it’s coming from or how it’s being invested. Investors should separate money into short- and long-term timeframes. Doing so can help craft a smarter strategy for investing and distributing income.
3. Shore Up Income Streams
The switch from work to retirement can be difficult. Shoring up retirement income streams gives retirees the comfort of knowing that they have a certain amount coming in every month and every quarter. That security can change their whole outlook in retirement.
Rather than seeing a retirement income stream as a percentage of withdrawal from accounts, investors should dedicate resources over different time periods. For example, investors could have a segment of assets for use in the near term that aren’t dependent on the stock market, such as a CD, bond, or money market fund. It’s important to have income streams separate from the stock market so as not to be beholden to market moves.
4. Invest in Quality Companies for the Long Term
An enjoyable retirement depends largely on realizing steady growth from long-term investments. So, investors should invest in quality companies with a sustainable competitive advantage, strong management, fair value for the price, and a proven track record of navigating economic cycles.
5. Be Tax-Efficient
Which asset “bucket” to draw money from and the potential tax implications of when that money is withdrawn should be factored into any retirement plan. To be tax-efficient, money must be divided into three different buckets: the tax-free bucket (including Roth accounts and life insurance), which doesn’t get taxed at all when withdrawn; the tax-deferred bucket (IRAs and 401(k) accounts, etc.), which get taxed at your ordinary income tax rates; and taxable buckets (brokerage accounts), where the gains get taxed at capital gains tax rates.
6. Use Integrated Planning
A solid investment strategy isn’t just collecting assets in a portfolio and tracking its returns. A good investment strategy must be integrated into an overall income, investing, and tax retirement plan.
Spencer notes that this is where financial advisors can help. Most advisors don’t do integrated planning; they tend to sell a product and gather assets into a portfolio. This approach can miss opportunities to maximize income withdrawals, investing efficiency, and tax minimization.
“An integrated plan looks at five essential dimensions of retirement design: income, investing, taxes, protection, and legacy,” writes Spencer. “It’s one thing to just talk about planning and a completely another thing to have integrated planning that weaves all the pieces together.”
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