How to Steer Your Retirement Portfolio Through the Storm – Kiplinger’s Personal Finance

Here’s something you already know: The world is a pretty crazy place right now. From high inflation and rising interest rates to major market fluctuations, today’s economic uncertainty goes beyond anything we’ve seen since the 2008 financial crisis – and possibly even before that.

Yet aside from the immediate impact on the cost of living, what does all this heavy economic weather mean for your retirement plans? And more importantly, how can you protect your precious nest egg from the worst of its effects?

Stress-test your portfolio

The best place to start is by using financial planning software to figure out what a period of no or low growth may mean for your retirement fund. Ideally, this should be something a little more robust than the free software on the internet. Instead, you want enough “bells and whistles” to let you play around with different variables and really understand their potential consequences. (A qualified financial adviser can help you identify the best software to use. I like eMoney Advisor.)

These variables should be things like:

  • What if we see inflation at 6% for a decade?
  • What if I lose 20% of my portfolio value in the next three years?
  • What if my annual rate of return during retirement is 5% not 7%?

By stress-testing your portfolio against these scenarios, you can figure out if you’ve got a gap between your projected income and the level of income needed to finance your planned retirement lifestyle – and if so, how big that gap is. Knowing this will then help you decide what actions to take to help close it.

Maximize your saving options

Which brings us on to step two: taking advantage of all possible savings vehicles. For example, while most people participate in a 401(k), far fewer tend to be familiar with a cash balance plan. This is a type of tax-deferred defined benefit that lets you invest a certain percentage of your income each year alongside whatever you’re putting into your 401(k).

Adding one to your portfolio is therefore a great way to build up your pension pot. In fact, if you’re in your early 50s, having a cash balance plan can be the difference between saving $67,500 a year with a 401(k) and profit sharing and saving $258,500 – all on a tax-deductible basis (this would be a cash balance plan layered on top of a 401(k) with profit sharing). Accumulated over a decade or more, that’s a very healthy boost to your retirement fund!

Split your nest egg up

There are two types of expenses that ultimately define your …….


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