How to Stay On-Track When Unforeseen Challenges Arise

It’s a scary feeling. You’ve planned carefully, saved appropriately, invested thoughtfully and are on track to retire. Then you are met with a significant and unexpected financial challenge. How do you stay on track?

Many families rely on the crucial years before retirement – a time when peak earnings can be socked away to fund retirement and eliminate any remaining debt. What happens when a major life event or financial hardship interrupts your plans?

Following are five unexpected events that can all be made easier by having the framework of a financial plan in place. We’ll look at the potential impact of each, and offer steps to minimize the damage and get back on track to meet your retirement goals.

Last month we looked at Threat #3, this month we look at Threat #4.

Threat No. 4: Investing Too Conservatively or Facing a Down Market

It’s not uncommon for adults today to spend one-third of their lives in retirement, so there is a significant risk to playing it “too safe” in your investment philosophy. This has rendered the old rule of thumb to subtract your age from 100 to determine the percentage of your portfolio that should be kept in stocks totally inappropriate. The outdated guidance often leads to portfolios that are too conservative to last as long as necessary, especially given the longer lifespans we see now. Decisions about asset allocation should be based on what you anticipate your needs will be during retirement and an evaluation of the resources you have to support them.

Additionally, many fear the effect a down market can have on a retirement portfolio. A market correction like we saw in 2008 and 2009 can create significant anxiety, and those who were forced to sell at the low point fared the worst. Structuring your financial plan so you are properly diversified and able to ride out a market downturn is critical. This means keeping your assets invested in such a way that you won’t have to sell in a down market to cover your expenses. Consider keeping at least a year of living expenses in cash and fixed income investments to give you room to hold on until the market rebounds.

Watch for Threat #5 next month…..

©2017 Robert W. Baird & Co. Incorporated. Member NYSE & SIPC. Robert W. Baird 3/2017