Frequently Asked Questions
1. I am 75 and already retired. Is it too late to change my investment strategy?
Absolutely not. It is never too late to review and adjust your portfolio to better suit your needs. In fact, regularly reviewing your investments is a key part of responsible financial management in retirement. Even small adjustments to reduce risk or improve your income stream can make a big difference in your financial security and peace of mind.
2. The market is dropping! Should I just sell all my stocks and move to cash?
While it is tempting, this is generally not a good idea. Selling in a panic often means you are locking in your losses at the market’s bottom. You then miss out on the eventual recovery. A better approach is to rely on your cash bucket for short-term needs and allow your stock investments time to rebound. History has shown that markets recover, but you have to stay invested to participate in that recovery.
3. How do Required Minimum Distributions (RMDs) affect me in a down market?
Once you reach a certain age (currently 73 for most), the IRS requires you to withdraw a minimum amount from your traditional retirement accounts (like a 401(k) or IRA) each year. In a down market, this means you are forced to sell investments when their value is low, which is not ideal. The one small silver lining is that the RMD amount is calculated based on your account balance at the end of the previous year. So, if your portfolio value dropped, your required withdrawal will also be smaller. Planning for RMDs by holding sufficient cash is a key strategy.
4. What is a “bond ladder” and how does it provide stability?
A bond ladder is a strategy where you buy multiple bonds that mature at different times. For example, you could invest $50,000 by putting $10,000 into a 1-year bond, $10,000 into a 2-year bond, and so on, up to a 5-year bond. Each year, one of your bonds “matures,” and you get your principal back. You can then spend this cash or reinvest it in a new 5-year bond. This approach provides a predictable stream of cash flow and reduces the risk of being forced to sell all your bonds at once if interest rates rise (which causes the value of existing bonds to fall).
5. Are annuities a safe investment to protect against volatility?
Annuities, which are insurance products, can provide a guaranteed income stream for life, which is a powerful way to reduce the impact of market volatility on your essential expenses. However, they are not universally “safe.” Some have high fees, long surrender periods (where you pay a penalty to get your money out), and complex features. A simple, low-cost fixed immediate annuity can be a very effective tool. A complex variable or indexed annuity might be less so. It is critical to understand exactly what you are buying and to work with a trusted advisor who is not just motivated by a high commission.
Disclaimer: This article is for informational purposes and is not a substitute for professional financial or tax advice. Consult with a certified financial planner or tax professional for guidance on your specific situation.
