So many baby boomers are either retired or heading that way, we like to give you advice when we come across it — not ours, but some experts’ — about how to plan for retirement. That’s why we want you to see what The Retirementor, financial writer Dennis Miller of Anthem, Arizona, has to say on MarketWatch.com about retirement money, and how investing it is different.
I frustrated the hell out of my analyst team, positing a number of “what if” market scenarios.
Finally Tim spoke up and said, “You’re posing all these scenarios; you’re the one who says the market always comes back.”
When shifting gears into retirement, you are shifting into reverse. It’s the opposite of the wealth-building years.
Retirees aren’t trying to get rich; they don’t want to get poor.
I chided my father about being so conservative. His answer never changed. “Son, the stock market can go down,” he would tell me. “I have all the money I need, I don’t want to lose it.”
When you quit working, you must reset the financial models that helped you accumulate wealth. Remember the 4% rule? It meant you could withdraw 4% to supplement your Social Security and still have plenty of money.
In 2008 I had friends who saw their retirement portfolios drop by 40% to 50%. The “always come back” theory works when you have time on your side. They didn’t; they had bills to pay. That required withdrawals of 8%-plus from their smaller nest eggs. Their revised projections showed their money would no longer last. Talk about stress. Not all Walmart greeters work because they’re bored.
A retirement portfolio must protect against every imaginable threat, avoiding potential catastrophic losses. Today, safe, fixed-income investments don’t keep up with inflation. To produce needed income requires more risk. International diversification is the best way to set up a system of counterbalances to avoid huge losses.
A well-balanced retirement portfolio must offer protection against poor business management, downturns in the business cycle, country risks, government action into the markets and currencies, and unexpected world events.
Investing in a few companies, one country, one continent, and one currency is very risky.
Once the door slams shut, it’s too late.
Investing beyond your own borders provides many opportunities to counterbalance your portfolio, reducing the probability of catastrophic losses. Don’t commingle the idea of investing in international companies and currencies with the idea of having an offshore account. Those are two separate issues. There are many options available to invest internationally from your home country.
The key is to work with someone who understands international markets.
Retirees understand the overriding goal is to preserve capital. You must put some money at risk to get your bills paid. The most conservative way to do so is invest globally. Retirees cannot leave themselves vulnerable to a downturn in the U.S. economy or the dollar.
What is the right model for you? The one that says, “If the market tanks, I won’t take catastrophic losses, I won’t be hanging on praying the market comes back and I will survive.”
Sleep well at night and don’t settle for anything less.