safeguarding your retirement

You’ve been planning for this for years: the ability to retire. You’ve saved diligently, discussed the transition with your family, and developed a succession plan at work. You’ve even celebrated the upcoming milestone by sharing a champagne toast with friends!

And then a bear market hits and appears to upset all your plans. The retirement paycheck that you’ve carefully arranged for may be in question. After ten years of a bull market, the stock market volatility is making you feel anxious and unsettled. Your illusion of control is shattered.

Although we don’t have control over many events in our lives – including the current health crisis, we do have control over how we prepare for and react to these events. If you work with a financial adviser, you’ve been educated to understand that bear markets are a part of normal market cycles, and that your investment portfolio was constructed to balance your individual risk tolerance with your need for growth over the coming years. You know the benefit of staying invested over the long run, and recognize that your portfolio should change only in response to changes in your personal life circumstances.

There are, however, several helpful moves you can make to reassert control and take advantage of a market downturn.
They include:

• Tax loss harvesting. In a market downturn, investments in your taxable account may be worth less than what you paid for them. You can take advantage of this situation by selling the investment and locking in the loss. Replace it with another investment in the same asset class, but dissimilar enough to avoid the IRS wash sale rule. This creates a capital loss for tax purposes and lowers the cost basis of the investments you own.

• Roth conversions. You can’t contribute to a Roth IRA if your income equals or exceeds certain limits, or if you are already taking Required Minimum Distributions from your retirement accounts. There is a workaround, however. Consider converting all or part of your Traditional IRA to a Roth IRA. Though you’ll pay income taxes on any converted funds, it can make sense if you believe your tax rate will be higher in the future, or in order to maximize the inheritance you leave to your heirs. This is an opportune time to consider conversions, since your IRA balances are lower and any future growth will be undiminished by required distributions.

• Delaying social security to increase your income later. If you had planned to start collecting social security benefits upon retirement, consider delaying. While you can begin to collect as early as age 62, waiting a few years, or at least until you reach full retirement age, can substantially increase the benefits you receive over your lifetime. I advise my clients to wait until age 70, if possible. Every year you wait between full retirement age and age 70, your social security benefit increases by a guaranteed eight percent!

• Decreasing your expenses by refinancing your mortgage. Mortgage rates are currently at an all- time low. Refinancing can lower your monthly payment. Be sure that you take closing costs into consideration before you move forward and calculate the amount of time it will take to breakeven on the costs, making sure that time period is less than the amount of time you plan to remain in your home.

There are also non-financial moves to consider in order to reassert control and increase resilience. I recommend keeping to a daily schedule, perhaps finding a buddy to hold you to your resolutions.

Keep a gratitude journal to remind you of all the good things that continue to happen in your life. Find a way to give back, either with time or money. Most of all, make time daily to speak with a friend or loved one, recognizing that we build true wealth by maintaining strong social connections.

Laura I. Rotter

Laura I. Rotter

Laura I. Rotter, CFA, MBA and CFP certified, is founder of True Abundance Advisors, a fiduciary, fee-only financial planning firm. She works with clients remotely or in person to help them clarify their goals, and develop an integrated plan to achieve those goals.Call her at 914-222-0832 or email Laura@trueabundanceadvisors.com to schedule a free initial consultation.
Laura I. Rotter

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