Retiring in 5 years, your portfolio is down – 5 things you must do now

It is the end of the world as we know it. The dollar is going to zero. Havoc is running the stock markets. The U.S. is on the brink of bankruptcy. At least that is what some in the media, a few of your neighbors and most of your co-workers are telling you. Watching your portfolio balance plummet gets your stomach in knots and has you reaching for the Maalox. You wonder if you will ever be able to retire, much less in the next five years when you initially planned.

Free advice comes by the boatloads; buy gold, buy annuities, short the market.  Suddenly everyone you speak to is an expert in the markets. What should you do if you want to retire in the next half decade?

Although some in the media might tell you differently, there is no need to panic and spend all your savings on Swiss Francs. Having a strategic plan may help those ulcers yet.

5 Things to Do Now

1. Know your goals. This sounds simple but most people have no idea. When you are five years away from retirement, you should know the date you will walk away. Mark it on the calendar. Estimate what it will cost. How much will you need to spend on everyday expenses to live without a paycheck?

What if you have more than 5 years until retirement?  Great!  More time to prepare.  You still need to know your goals.  Every great athlete will tell you that they visualize themselves already having accomplished their goals before the event.  You need to do the same thing.

Make your goals SMART; Specific, Measurable, Attainable, Realistic, and Time-Bound.  Finally, imagine yourself already having accomplished your goal and write down a few words that describe how you are thinking and feeling already having accomplished it.  This simple exercise can help you stay focused when the distractions come.

2. Where will the money come from? Write down all of the sources of income you will have during retirement. These could include a pension, Social Security, and investment income.  If you plan on working part-time in retirement include that.  Remember that earnings can have an impact on the Social Security you receive.

3. Adjust your savings rate as necessary. Your investment portfolio will have to cover the difference between the income you calculated in #2 and your income need. Most planners will tell you a safe withdrawal rate is about 4% of your assets every year; we will explore this in more detail in a future article.  Increase your savings rate now if you think you may not be saving enough.  Cramming for a test may work but it does not work for savings!

4. Align your portfolio to match your goals. Remember even if you are retiring in five years, your portfolio should still be aligned for long-term goals. You won’t be liquidating everything the first year of retirement (let’s hope). If you are way behind it doesn’t mean you should be all in and take too much risk trying to catch up. Adjust the date you will retire or your expenses during retirement. Try to find a portfolio that you can cope with good times and bad.  We will talk about how much risk to take in a future article.

5. Stick to the plan. Once you have established the plan, stay with it even when times get tough. Understand your portfolio and the expected range of returns. Especially the worst one-year scenario. Adjust your plan only as your goals change. It usually does not pay to switch investment strategies mid-stream.

Having enough money in the future means making better choices today.  Good financial habits are a lot like good eating habits.  The chocolate cake tastes a whole lot better than broccoli but make that choice too often and you will pay for it down the road!

It is easy to get derailed from your plan. We are all constantly bombarded with terrifying news on a daily basis. The surprising fact is we ALWAYS have terrifying news. That’s what draws the viewers and viewers draw ad revenue. If you ignore the noise, your portfolio may thank you for it and your retirement might come sooner than you think.