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Jim Lentini: Retirement and market volatility

Posted: March 24, 2009 1:51 a.m.
Updated: March 24, 2009 4:55 a.m.
For most investors, market volatility is a fact of life. Stock prices fluctuate from day to day, and markets ebb and flow over time along with the economy and business cycle.

Investors saving for long-term goals can usually overlook temporary volatility in the interest of long-term gain.

But for retirees, who increasingly rely on their investments to fund their living costs, market volatility can mean the difference between living comfortably and just scraping by.

In fact, retirees are particularly vulnerable to market downturns, especially in the early years of retirement because of their dependence on portfolio income, their limited investment horizon, and their need to make sure their savings last throughout their retirement lifetimes.

The following strategies can't guarantee against losses, but they may be able to ease the ups and downs in the market and contribute to greater peace of mind.

n Keep withdrawals conservative: Retirement experts suggest withdrawing no more than 5 percent of a portfolio's value each year.

Withdrawals of less may not keep up with inflation over time, and greater percentage withdrawal may run out of money in a normal life expectancy.

n Maintain a sensible asset allocation:

A retiree's portfolio should be divided among stocks, bonds, and cash investments so that he/she has adequate exposure to the long-term growth potential that stocks provide, but also has some protection against market setbacks.

n Review and Rebalance the portfolio: Fluctuations in the market may cause the asset mix to become too heavy in stocks, which could expose the retirement nest egg to damaging, even irreversible setbacks when he/she is on the verge of retirement.

Similarly, as you grow older, you may want to weight the portfolio toward bonds for their ability to produce income.

n Work with a financial professional: The guidance of a financial adviser can always be beneficial, but it may be especially so in the years leading up to and entering retirement.

It is at this time that retirees are at their most vulnerable. In either case, an adviser can help investors/retirees make informed, unemotional decisions consistent with their financial goals and needs.

In closing, as I have mentioned in previous articles, a variable annuity with a guaranteed income rider can be a valuable option for some portion of retirement assets. It answers all the above-mentioned strategies and guarantees lifetime income.

Always consult with a financial adviser to explain and understand the differences between these products and riders.

Variable annuities and the guarantee income riders can prove valuable to current and future retirement income, especially in the current financial crisis we are experiencing in our economy and how it affects our personal needs and goals.

Jim Lentini, CLU, ChFC, IAR is President of Lentini Insurance & Investments Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.


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