How to stay the course in retirement

In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

In the past few weeks, we have seen economies be brought to a standstill by COVID-19, unprecedented social measures announced by governments around the world, and a new, unusual rhythm of living that many of us are still settling into.

Although it might feel like things are calming down a little as markets begin to seesaw with less extremity, it's still the case that uncertainty ahead is likely to be the only constant. Even for the most measured of investors, staying the course in such times can be challenging, and perhaps particularly so for those who have retired.

You may have read in the news that many investors are “buying the dip” and taking advantage of trading opportunities caused by the volatility, with the view that share prices will eventually rise again. But for many in retirement, the first instinct is not to capitalise, but to protect. And advice to stay the course, while important, can feel a little off base when your super fund's portfolio has dropped sharply and you are starting to feel a bit helpless.

Here are three options to consider if you're in the retiree camp.

Reassess your asset allocation

Staying the course doesn't necessarily mean do nothing. More practically, it means sticking to your investment plan but periodically re-evaluating your asset mix to ensure it's still aligned to your goals, time frame and appetite for risk.

In light of all this volatility, perhaps you are now realising your tolerance for market risk is not as high as you previously thought – or you were comfortable but hadn't got around to updating/reviewing since you retired. In a severe market event like this you want to avoid trading in response to market moves and locking in losses. But it does make sense to revaluate your risk tolerance and consider how to rebalance your portfolio and lean towards fixed income products. One way to do this can be to redirect your investment distributions to conservative fixed income funds so you can build up the defensive portion of your portfolio over time.

Rethink discretionary spending

Reducing spending where possible goes without saying during difficult times but nobody would label it an ideal solution. But while you can't control the market nor predict its movements, your discretionary spending is however a factor that you can adjust.

For example, let's say your portfolio was valued at $950,000 at the beginning of the year.

Assuming a six per cent average annual return throughout retirement, you estimate you have a total amount of $4,750 to spend a month. If all other factors remain the same but your portfolio balance declines by 25% (to $712,500), your estimated monthly income drops by almost $1,200 a month (to about $3560).

For the time being, tightening your belt slightly in step with your reduced portfolio balance might help ease financial stress and help navigate through the crisis.

Relay concerns to a trusted adviser

The value of a good financial adviser often shines most brightly during periods of market uncertainty. When you're not sure what best to do, advisers can offer guidance and support that's tailored to your individual circumstances.

According to some research Vanguard recently conducted into the value of financial advice, it was noted that instead of purely focusing on portfolio and financial value, it is also worth assessing the value advisers can bring from an emotional standpoint.

Peace of mind can't be quantified in dollar terms but it is perhaps just as important as the figure on your portfolio statement. A second, professional opinion can calm your nerves or boost your confidence during these unsettling times. And if you're feeling particularly affected by the last few weeks, it might also help you readopt the right mindset to make considered investment decisions for your future.

Staying the course isn't always as easy as it sounds, but by keeping emotions in check and focusing on the factors you can control, you might weather this storm better than you think.

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
15 April 2020
vanguardinvestments.com.au