At or near retirement? Consider these moves to protect your nest egg
- If you're in or near retirement, this week's market activity probably has made you worry about your income.
- Moving investments now may very likely decrease your net worth down the road.
- Instead, make changes to areas that you can control, such as how long you work, how much you spend and how you manage your other big assets, like your home.
This week's market activity probably wasn't the shot of confidence you were hoping for if you're retired or planning to retire soon.
And your first instinct is probably to protect your retirement income.
Yet experts caution that the worst way to do that is to take dramatic actions with your investments.
"Clearly, you don't want to sell in a low market," said Steve Parrish, co-director of the New York Life Center for Retirement Income at the American College of Financial Services.
You also want to avoid making big, bold decisions before you fully think them through.
"I want to caution people, don't make rash decisions when there are bad things going on in the market," said Carolyn McClanahan, director of financial planning at Life Planning Partners in Jacksonville, Florida.
Instead, look to other strategies outside your investment portfolio that can help extend how long your assets last in your golden years.
Plan on working longer
"If you're close to retirement, but haven't, it really makes sense to keep working," Parrish said.
For example, if you were planning to retire in June and just extend that deadline until the end of the year, that's extra income coming in. Plus, it extends how long your portfolio will cover you in non-working years.
"Say you wait until the end of the year when the market recovers," Parrish said. "That's going to have an exponential effect on what your retirement income is."
Plus, if you aren't yet 65 and eligible for Medicare, that prevents you from having to pay for COBRA or private health insurance, he said.
One rule all individuals should strive for: Work as long as you are healthy, McClanahan recommended. That's one thing you can depend on, rather than counting on the markets to take care of you for 20 years to 40 years.
"Your human capital is your safest asset," McClanahan said. "Controlling your ability to work is definitely something that is easier than trying to control the stock market."
Cut back on spending
One surefire way of shoring up your personal balances is to make more with the money you already have.
"If you need to be panicked, do it in the form of saving money, rather than trying to liquidate your investments," Parrish said.
For starters, take a look at your cell phone plan to see if you can whittle it down, or maybe go out to eat less. Revisit recurring subscriptions like cable television packages and how much you are using them.
"Everybody has a different mindset about what's important to them," McClanahan said.
If, for instance, you've decided eating only organic food is a priority for you, try to see how you can reduce those costs by bargain shopping or learning to grow your own vegetables, McClanahan suggested.
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Consider short-term debt
Taking on debt should always be done with a great amount of caution.
Yet depending on your needs and the terms, it sometimes can make sense.
That's because taking money out of the market will likely have big long-term consequences for your financial health. Meanwhile, interest rates on loans are at record lows.
"Consider a short-term bank loan if you need cash flow, rather than liquidating some of the equity that normally pays some of your retirement income," Parrish said.
The key is to limit that debt to short-term to carry you through the market until the novel coronavirus is under control, he said.
Keep in mind that bank loans, whether offered by a brick-and-mortar or online institution, are preferable over credit card loans, which come with much higher interest rates.
Think through long-term strategies
If you own a home and were on the fence about whether or not to borrow against it, that strategy could make sense now, Parrish said.
"Your equities are presumably in the tank, but the equity in your house is probably still OK," Parrish said. "A line of credit certainly makes a lot of sense right now."
Money from that loan, whether through a home equity loan or reverse mortgage, can serve as fixed income you can count on.
Making such a move requires caution, Parrish said, because these transactions often come with a number of fees and take time to process.
"It's not something where you call up the bank tomorrow and get it going," Parrish said.
While reverse mortgages can be helpful for some people, they often have loopholes that people didn't recognize when they signed up for them, McClanahan said. And that can lead to regrets if you don't know what you're getting into.
"Don't make rash decisions; really research those," McClanahan said.
When it doubt, consult a financial advisor who charges hourly fees and can help you sort through your overall income and spending needs and help you come up with a plan, McClanahan suggested.