“It’s important not to confuse risk with volatility, because volatility is something we have to live with,” Ms Benz said. “Checking your liquid and near-liquid reserves is one way to understand how much buffer you have and how long of a downturn you can sustain.”
For those looking to improve their flexibility or ability to avoid selling in a volatile market, she often asks people to think about answers to a series of questions, including: What would it be like to find a job that replaced income? what would you need? your portfolio to generate? What would your expenses look like if you downsized? She encourages people to consider moves or phased changes, citing the example of a couple who wanted to live on the commuter rail line in Chicago but decided to move away from downtown, where housing was more affordable. The new location allowed them access to the city, but at a lower cost than their old home.
wait for social security
Delaying taking Social Security benefits becomes an even more effective strategy in bumpy markets, according to William Reichenstein, head of research at Social Security Solutions in Overland Park, Kan., and professor emeritus at Baylor University.
“The most profitable part of your bond portfolio is actually delaying Social Security,” Dr. Reichenstein said. “Why do most people start as soon as they can or almost as soon as they can? My strong expectation is that they haven’t learned delayed gratification.
In recent years, the number of people applying for benefits in their early 60s has declined, with only about a quarter of eligible 62-year-olds doing so in 2019, according to Boston College’s Center for Retirement Research.
According to Dr. Reichenstein’s calculations, assuming a healthy retiree with an average lifespan, deferring benefits generates an 8% return each year they delay. For example, a 67-year-old would receive 108% of their scheduled benefit by waiting until age 68 and 116% by delaying until age 69. Conversely, those who collect earlier, at age 62, only receive 70% of their expected benefit with incremental increases each year they delay.
As an example, consider a 62 year old with a life expectancy of 90 who started collecting a monthly check for $1,400. If he had waited to start his benefits at age 70, with the same life expectancy, the 62-year-old would have received an additional $124,800 in actual benefits – without taking into account the increased cost of living – and would have broken even at 80 years and five months, he said.