If you're planning to retire in the next few years, you may wonder how volatile investment performance and the current low interest rate environment will affect your ability to pay your expenses in retirement. Here are six things to think about during your final working years to help secure your financial future:
1. Consider working longer
If you're healthy enough to stay on the job for a few additional years, this move can benefit your finances in a few ways. First, you'll have more time to earn money and contribute to retirement savings vehicles. Some pre-retirees choose to transition into part-time work or consulting opportunities to slow down while still maintaining an income stream.
2. Consider delaying Social Security payouts
The longer you can wait (up until age 70) to start receiving Social Security benefits, the more money you'll collect each month once you start receiving the payments.1
3. Ride out market ups and downs
It may be tempting to divest low-performing stocks or other investments as the market dips. However, selling low won't ultimately benefit your portfolio. "Since 2008, people who stayed invested despite the market volatility have essentially made all of their losses back," says Michael Hoffman, a SunTrust financial advisor in Georgia. “Some of them have even made gains at this point.” Instead of exiting the market, talk to your financial advisor about different investment strategies that may offer protection from market volatility.
4. Continue paying into your retirement account
After watching the stock market experience large swings over the past few years, you may be tempted to halt contributions to your retirement accounts and keep the money in seemingly safer vehicles such as cash. However, this strategy means you'll miss out on tax incentives, employer contributions and potential market gains as the economy rebounds. What’s more, even low rates of inflation can quickly erode the spending power of cash. So keep contributing to your 401(k) and IRA. If you’re 50 or older, take advantage of the ability to make catch-up contributions to these accounts.
5. Keep your portfolio diversified
Some workers make the mistake of heavily investing in a single stock, especially if part of their compensation comes in the form of their employer stock. But should that company hit a rough patch, you could lose your livelihood and a sizable portion of your net worth. "The golden rule of investing is if you do nothing else, don't put more than 10 percent of your investments in one company," Hoffman says.
6. Establish lines of credit
If you need access to emergency funds during retirement, you may get denied a line of credit due to your lower retirement income. That's why Hoffman suggests establishing a line of credit while you're still working, and then only using it in a true emergency. "In case the market takes a tumble and your assets are down, it might be smarter to use credit in an emergency,” he says. “That way you can avoid liquidating securities while they're down in value."