Pre-Retirement Investing

Written by Jonathan Citrin – December 17, 2009
Published by 55-Alive!

Investing is not a static exercise. Savvy investors understand that a well-rounded portfolio evolves over time to respond to a dynamic world and the changing needs of the investor. As investors face retirement, that reality is reinforced. Investment decisions take on a heightened level of importance for individuals and their families, and investment and asset allocation considerations change. As investors approach retirement age, these decisions are complicated by the fact that many people receive large lump sums of money from 401Ks and profit-sharing plans. Allocating these new assets, and making strategic changes to existing investments to meet new and evolving needs is a critically important component of any comprehensive retirement strategy.

While everyone’s personal circumstances are unique and no single strategy is a perfect fit for every investment portfolio, there are a few core principles that every prospective retiree should consider:

Be conservative

The financial realities of a retiree are very different from someone who is still an active member of the workforce. With no wages coming in, there is very little margin for error, and even the smallest mistake or misjudgment is compounded at this point. It is therefore all the more important that retirees and soon-to-be retirees exercise caution in their investment decisions and adopt a more conservative posture when it comes to asset allocation. Now is not the time to take chances. Thoughtful investors should choose an investment plan that they can sustain no matter what happens.

Start early

A common mistake is waiting too long to begin preparing for retirement. Implementing the kind of thoughtful investment strategy that will meet your needs is a process, not an overnight change. Do not wait until you retire. Start reallocating assets and adapting your investment strategy early, ensuring that sudden shifts in the marketplace are not unduly punitive. We need look no further than the recent recessionary cycle to see a clear example of the perils of waiting too long. Unfortunately, many who were planning to shift to a more conservative investment posture once they retired are now faced with serious challenges in the wake of a troubled economy. Begin to think about reallocation ten years or so before retirement, and try to complete the repositioning process about five years before you retire.

Be patient

Patience is a virtue, particularly when it comes to investing. While pre-retirement planning and post-retirement investing comes with its own unique set of priorities and considerations, the same basic rules of thoughtful investing still apply. Do not try to make up losses all at once. Too many investors who lose money make the mistake of taking on more risk in an attempt to try and “fix” the problem, and only end up digging the hole even deeper. For prospective retirees, it is more important than ever to not simply follow the crowd; make sure to address your own unique requirements, confidently implementing a long-term strategy that suits your personal circumstances.

Be realistic

It is important to be realistic. That realism extends both to your anticipated returns, as well as to the long-term financial needs for yourself and your family. Retirement is an entirely new chapter in people’s lives, and spending habits, as well as day-to-day financial necessities, can be dramatically different than they were just a few years earlier. A thoughtful, level-headed assessment of both your goals and your prospects will help you make informed and strategic decisions when it comes to investing new monies and reallocating existing assets.

Find an advisor you can trust

Finally, and perhaps most importantly, you should find an investment advisor you can trust. Informed professional guidance from an advisor who will take the time to listen to your needs, evaluate your existing assets, and help you plan for years of comfort and security is an invaluable resource. When selecting an advisor, it is important to establish a strong comfort level, both personally and professionally. Do not let people push you around; work with someone who understands your needs and is willing to help you craft an investment strategy that is in line with your goals. Establishing a positive and productive partnership with a trusted investment professional is vital in the process of educating yourself about your financial future, and ensuring that you will be an informed and effective advocate for you and your family in the years ahead.

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