How to Position Baby Boomers for Rocky Market Cycles


Shortly after the New Year’s celebrations ended, the stock market tumbled more than 1,000 points, making 2016 the worst five-day start to a year on record, according to Dow Jones.  For baby boomers nearing or in retirement, volatility in their retirement accounts causes great concern for them as they ponder the future of their financial security.

Travis Chance, a Certified Financial Planner offered the following tips on how boomers should be positioned if they can’t afford to lose money.  Here is what you need to know:

Boomer:  With the volatility in the market last week, is it time for baby boomers to take their money out of the stock market?

Chance:  Maybe….The recent volatility in the market last week, as well as last year, should have been a wake-up call for many Baby Boomers. Those with 5 to 10 years out from retirement should stay the course, but for those with 5 years or fewer or retired, it’s time to think differently. I don’t think the markets should be avoided, but only used for money needed with longer time horizons. Retirement Assets, that are planned to access 5-10 years out, may need to be in the markets for a successful retirement plan.

Boomer:  Should I be putting my money in money market accounts for protection against losses?

Chance:  Again, this is another question that speaks to the overall plan and risk tolerance of a client. Retirement savings should be thought of in two ways, Safe and Risk money. Safe money should be investments that produce income, and have minimal to no volatility. Risk Money should be money that is designed to produce growth, and has a much longer time frame. Many Baby Boomers have all of their money in growth due to the low yield environment, and ask the portfolio to produce growth and income. This is a common mistake, and adds a large degree of market risk and sequence of returns risk to a retiree’s portfolio.

Boomer:  What part can a guaranteed annuity play in securing my retirement savings?

Chance:  I think there are advisers that would argue both sides depending on their perspective in the industry. The truth is an annuity used for the right reasons can be a very appealing addition to a portfolio. Annuities are and always should be viewed as income. Lifetime income annuities can be used for a variety of reasons, and the most important is to provide a floor of income to cover constant daily living expenses. Using Annuities that have low to no fee drag, and built for income as its primary purpose should be considered in a well-diversified portfolio.

Boomer:  Should I invest in a high yield savings account?

Chance:  Yes, a certain degree of liquidity is very important in retirement planning. I think all clients should have 6 to 12 months income in a readily accessible account such as checking, savings or high yield checking to cover immediate cash flow needs. This should provide the Baby Boomer with enough liquidity to handle any unforeseen expenses, and provide a great deal of sleep insurance.

Boomer:  How about diversifying my portfolio?

Chance:  Many Baby Boomers believe that they are diversified, and if they are not in retirement, that may be the case. A truly diversified retirement portfolio is not just a balance of stocks and bonds, but a portfolio that plans for other risks such as Sequence of Returns Risk, Longevity Risk, and Healthcare Risk. If you are retiring in 5 years or less or in retirement, you should take diversification a step further in the process. The first decision is how much should be dedicated to income producing assets, and how much should be positioned for growth. Since the income bucket should consist of low to no volatility assets, the next decision is to determine how much risk is appropriate for the growth bucket. Many people use different methodologies to determine the proper allocation, but my preference is the max draw down method. If you have $100,000 in retirement assets, and the markets (assume S&P Benchmark) correct by 30%, how much pain could you tolerate? Could you sleep at night if your growth bucket lost $30,000 in a correction? If not, you need to start reducing risk, and may want to seek professional guidance to assist you in your planning.