Q: I have been a federal employee for over 25 years and am only 2 to 4 years away from retirement. I am concerned that I will experience the same type of retirement savings decline as those close to retirement in 2007-2008 did. With the market volatility from the “Brexit” move and the upcoming elections, I am nervous about being able to meet my retirement goals.
In both my TSP and my IRA’s I am invested in a moderate/aggressive approach. Should I stick to my guns or should I pull back and move into less risky options?
A: This is a good question and one I am receiving a lot from feds today.
Generally, I suggest the closer someone gets to retirement, the lower the risk they should be taking with their retirement money. I make this suggestion for the very reasons you bring up. We try to take precautions to preserve retirement savings more and more the closer that person gets to retirement. Those that had to postpone their retirements because of the market decline in 2007-2008 still remain vivid cautionary tales for us all.
However, there are other items to consider before making drastic moves with your investments:
- Is your current savings sufficient to cover your retirement needs? If not, then moving into a more conservative stance may not be your best course of action. In the investment world there are certain rules of thumb (not etched in stone) that we use to make recommendations. One of those rules is, the less risk you take (generally) means you have less opportunity for growth. If you need your retirement saving to keep growing in order to pursue your personal goals, then lowering risk could lower your chances of success.
- Moving to a more conservative approach because of a presumed market decline would be considered “timing the market.” Timing the market is a dangerous way for an individual nearing retirement to handle their retirement investments. It becomes a guessing game. So, when would be the best time for you to make any sweeping adjustment? I suggest making changes when your “plan” tells you it is time, not when you fear losing or losing out. Understand, no one has a crystal ball when it comes to the future of the markets. Not even “Professional” and “Experts” can provide 100% guarantees on upcoming market movements. Trying to time the market may be the largest gamble of your life. You may get lucky and hit the jackpot, but, you may also shoot craps and spoil your retirement dreams.
Creating and abiding by a retirement plan (pre and post) I feel is your best course of action. The guess work and knee jerk reactions are then taken out of the process. This could help make you and your retirement investments proactive instead of reactive. You will make moves when it is the right time to make moves based on the outline of you plan.
Bottom line, I don’t know in the next year or in the next five years what Brexit (Britain’s exit from the European Union) and this upcoming election will do to the “markets.” But, I feel if you build a comprehensive financial plan you could provide yourself a better opportunity of retirement success. I also suggest finding a qualififed financial Advisor (FFA) to help you develop this plan. You only retire once, FFA’s do this type of planning every day.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss.