How to Transition into Retirement on the Top of a Bull Market

Volatility is easily the most misunderstood part of investing. When the market is too volatile, investors tend to panic and want to pull all their money out. When the market isn’t volatile enough, they risk not earning the returns needed to make it through retirement.

Volatility is normal and completely necessary for portfolio growth. This may seem like backward logic, but you’ll become a much stronger investor if you embrace volatility and stop fearing it.

Even if you’re retiring on top of a bull market (and expecting a future bear market), there are things you can do to prepare.

Your Money Mindset

The financial world is noisy with non-stop chatter about what you should and shouldn’t do with your money. This noise can cause us to overreact and make a decision with our money based on emotion instead of logic. This is dangerous territory.

My advice? Tune out the noise and focus on your priorities. Understand why you make certain financial decisions, develop a plan and stick to it. Stay the course no matter what the market is doing.

I’m not saying you should bury your head in the sand. But once you understand how you react to certain situations (such as retiring on top of a bull market), you can help cut out the noise by creating a plan based on your goals.

Have concerns about retiring at the top of a bear market? Register for our upcoming workshop in which we’ll discuss just that. The workshop is online so your answers are just a click away. Register here.

Concerns of a Pending Bear Market

Let’s talk about one of your biggest fears as you enter retirement. If you’re like most retirees in 2019, you’re worried that you’ll outlive your money. The current bull market could be inflating how much money you have actually saved. As we approach a potential bear market, you may face the harsh reality that you don’t have as much as you need.

It’s taken you years to accumulate your wealth, so it’s understandable to have fears about pending bear markets as you retire on top of a bull market. Thankfully, there are steps you can take to help mitigate those fears.

You can’t control what the market does, but you can put a plan in place to help prevent your biggest fears from coming true. Let’s take a look at how to prepare for a pending bear market as you transition into retirement and mitigate your fears. I’ll break it down into 4 steps:

1. Stress Test Your Portfolio

Are you concerned about how you’ll deal with losses when the market corrects itself? If so, try to envision what it would be like if the market tanked. Layout the worst-case scenario, and use that as a basis for your financial plan.

Working with a financial advisor who utilizes financial planning software that can address a thousand different scenarios based on market performance, overspending, medical expenses, death, etc. can be extremely valuable. This way you can not only see the worst-case scenario but several other what-ifs as well.

If your portfolio has gotten more aggressive as you’ve rode the bull market, you may want to adjust your risk. You can do this by rebalancing your portfolio. I strongly suggest talking with a financial advisor before making any adjustments to your portfolio yourself.

2. Super-Size Your Emergency Fund

Financial advisors often refer to the five years before and after retirement as the red zone. Why? Because you have less time to recover from poor investment performance. So, what do you do? You prepare by building a super-sized emergency fund to help protect you.

While it’s often advised to have six months worth of expenses saved in your emergency fund, as you enter retirement, you may want to increase your fund to cover at least two years worth of expenses. Yes, keeping your money in savings leads to smaller returns, but it’s always there when you need it. You can use this money to cover emergencies and manage your anxiety.

3. Identify Your Needs

How much income will you need in retirement? What are your short-term and long-term goals? These are questions you should answer before you enter retirement. Identify these needs early, so you have a clear picture of how you need to prepare.

If you’re expecting to pay off your mortgage before you retire, for example, keep that money in your savings account instead of the stock market. You may be trying to get a higher return by keeping it in the stock market, but sudden fluctuations could cause you to take a big hit.

4. Use Your Fixed Income

What are your main sources of income in retirement? Whether it’s pensions, retirement accounts or investments, turn toward your fixed forms of income during down periods. Use guaranteed income sources first to determine how much income you’ll need in retirement. Once you have that number, fill in your income gaps with investments.

When the market is down, these forms of fixed income can help protect you from potential losses of the market. Why? Because you can keep more money invested in the stock market as you wait for it to recover. Once it does recover, you can pull more money out of investments as needed.

These forms of fixed income can cover your basic needs and offer peace of mind. They also help you meet the retirement needs you identified above.

Get Support

Everything you do in life comes with risk. The question is, what are you going to do about it? Even if you do everything we’ve mentioned above, you will probably still appreciate having someone in your corner who will help you along the way. A trusted financial advisor can be the key to living out a worry-free retirement. He or she can help you answer questions like, can your portfolio carry you through the next bear market?

At PAX Financial Group we take a holistic approach to investing and look at our clients’ complete situations before making a plan to help them live the retirement life they dream of.

To learn more about how PAX Financial Group can help you, click here to contact us for an appointment.

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

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