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How to Rescue Your Retirement Portfolio

Paulina Likos
·6 min read

How to meet retirement portfolio challenges

Managing your retirement accounts and investments can be a challenging feat, given the uncertain market environment investors have been facing. This year in particular may be urgent for the older population to get their retirement portfolio right. There are 2.9 million older workers, ages 55 to 70, who have left the workforce since March at risk of involuntary early retirement, according to a study by the Schwartz Center for Economic Analysis at The New School. Retirees and those approaching retirement age may have to take the time to review their finances and finesse investment strategies to make sure their savings, along with their retirement income, is sufficient for when they bow out of the workforce. Here's what to keep to keep in mind when making critical decisions about your retirement portfolio.

Know your risk tolerance.

Retail investors who take on retirement planning themselves may come to realize that it's challenging to measure their risk tolerance. Portfolio risk management is one of the key pillars for a stable retirement account, particularly amid market volatility and uncertainty. "Until someone has gone through a market correction, they don't really know what their risk tolerance is," says Jana Shoulders, managing director of Mariner Wealth Advisors in Overland Park, Kansas. The turbulent market activity in March was an opportunity for investors to get an idea of where they land on the risk-tolerance spectrum. Investors who saw their retirement portfolios fluctuate over the short term but held strong could self-assess how much market stress their portfolios could endure until the market rebounded. "Having an awareness about what's the worst that can happen is helpful for people to know how much volatility they can stomach," Shoulders adds.

Manage short-term and long-term income needs.

Income investors may need to consider income-management strategies to manage their cash on hand and their long-term investments. It's important to have an emergency fund that offers a reliable monthly cash flow to pay for living expenses. Your short-term cash cushion sets the stage for how to approach your long-term investing strategy. "Have three to five years of living expenses in cash or near cash. Knowing that they've got the next three to five years of living expenses in the bank may help with being more aggressive with their long-term portfolio," Shoulders explains. Taking on additional risk with your investments could offer superior investment returns and increase your wealth. Shoulders advocates for investors to have a plan, either through maturing bonds, dividends or harvesting capital gains that continue to keep that cash portfolio up.

Delay Social Security benefits.

Putting off filing for Social Security can give you additional time to allow your investment portfolio to grow and ultimately increase your retirement savings. When you reach retirement age, you can begin receiving Social Security benefits -- but you also have the option to defer those benefits to a later date, which will increase your benefits if you choose a delayed retirement option. Rhian Horgan, founder and CEO of Silvur, an app dedicated to helping baby boomers navigate retirement, says Social Security lays the groundwork for this generation's retirement plans. "Social Security today is more than 50% of the average American's retirement income," Horgan says. "It's a foundation of their retirement security." You can take Social Security as early as age 62, but the full benefits don't kick in until 70. Horgan says that every year you delay Social Security, your benefits increase by 8%. Since we're expecting lower returns for longer, she says "delaying your Social Security benefits and generating an extra 8% per year return is a very attractive financial planning perspective."

Add alternative investments to your portfolio.

Alternative investments can help provide diversification to your investment portfolio. These assets tend to respond differently than stocks and bonds in varying market conditions and offer the chance at higher returns to increase your income. Historically, alternative investments were not accessible to the masses. Michael Weisz, co-founder and president of Yieldstreet, a digital wealth management platform based in New York City, explains why it's important to add alternative investments to your retirement accounts. "I think it's important for people in retirement to identify opportunities that are going to provide passive income. Or for people looking to get into retirement, to invest in credit opportunities where they can continue to earn a higher interest and compound that money by continuing to invest over the many years until they reach retirement," Weisz says. It's also important for investors to properly diversify within asset classes.

Use a retirement planning app.

Investors who want to take a more hands-on approach to retirement planning may consider retirement apps. Many retirement-planning apps on the market are free or have low costs. They offer tools that assess your financial profile to see if you are on track or at risk with your retirement savings. Horgan explains that as baby boomers are living longer, they're concerned that their income needs may not keep up with their living expenses and health care costs. With Silvur, for example, you provide information about your financial profile and the app generates a retirement number, telling you how long your savings will last along with simple tips on how to further stretch your money. Horgan says, if you want to improve your retirement number, Silvur offers scenarios like how your retirement finances will improve if you reduce your spending or delay retirement. "Consumers feel really empowered when they see this score because finally they understand what their financial wellness looks like in retirement," she says.

Assess asset allocation.

Prudent investors can assess their asset allocation in their investment portfolio and rebalance periodically on a quarterly basis or when their allocation has considerably changed for any of their asset classes. After determining the appropriate blend of assets, investors could put their asset mix in either a tax-deferred or taxable account according to the tax implications on capital gains and income to grow after-tax returns. For people going into retirement or recent retirees, Shoulders recognizes the fear they have about how they're going to replace their income. Given the low-yield environment, Shoulders says investor are "not going to get it from traditional sources." She encourages them to think about the total return instead of trying to invest so that they're living just off the yield.

Maximize contributions.

Maximizing your contributions with your employer-sponsored retirement account offers benefits to your retirement plan. Through automated contributions, employers usually match your contributions up to a certain percentage, giving you free money that helps build up your retirement funds. Employees can contribute up to $19,500 to their tax-advantaged 401(k) in 2020 and 2021. If you are aged 50 or over, you're eligible for an additional catch-up contribution of $6,500 this year and next. Taking early steps helps you get the most out of your retirement savings, which cuts down on your income tax while bolstering your future savings.

Seven ways to rescue your retirement portfolio:

-- Know your risk tolerance.

-- Manage short-term and long-term income needs.

-- Delay Social Security benefits.

-- Add alternative investments to your portfolio.

-- Use a retirement planning app.

-- Assess asset allocation.

-- Maximize contributions.