Why the Biggest Retirement Upgrade Isn't a Bigger Portfolio — It's a Better Strategy
Many people spend decades focused on growing the biggest retirement portfolio possible. But once you're on track, experts say the next upgrade isn't necessarily adding more money. What makes or breaks your retirement planning is a smarter strategy.
To get specifics, MoneyLion consulted retirement and financial experts, who offered these five tips.
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1. A Bigger Portfolio Isn't Always the Biggest Retirement Upgrade
Saving more is important, especially if you're behind, but retirement quality eventually depends more on how efficiently you manage what you've accumulated, according to Roland Chow, financial planner and portfolio manager at Optura Advisors.
"A better retirement is so much more than a larger portfolio," he said.
It's important to figure out the final goal and whether the goal will change as the retiree moves through different phases of retirement, according to Chow:
“Portfolio size is one dimension, but there minimally a dozen different dimensions to consider in retirement."
Martin A. Federici, Jr., CEO at MF Advisers, Inc., also said that some people not only want to, but plan to, keep working part-time in retirement. These people may be OK with a slightly smaller portfolio, so long as they have good diversification.
2. Tax Flexibility Can Give Retirees More Control
Rather than focusing only on growing investments, Federici said that building multiple tax "buckets" may provide one of retirement's biggest advantages. Having taxable, tax-deferred and tax-free assets gives retirees greater flexibility as tax laws and income needs change.
One bucket many retirees don’t think about until it’s too late, he said. are Roth IRAs, which, if started earlier enough, allow for Roth conversions at retirement age. This allows for tax-free income to draw from later in retirement and to pass onto heirs as well if that's important.
3. Protecting Your Portfolio Can Matter as Much as Growing It
Once retirement gets closer, preserving wealth becomes just as important as accumulating it. Retirees should consider implementing a “capital preservation plan to reduce downside risk when market conditions become unfavorable,” said Steven Kao, director of portfolio management and a financial advisor at Kirsner Wealth Management.
Chow agreed, saying that reducing unnecessary downside risk, which he called “de-risking,” can help retirees avoid large losses that are harder to recover from when they're no longer earning a paycheck. He said people should start thinking about this strategy in their early 50s.
Chow recommended doing this with a financial planner, who can help determine if the retiree should allocate the portfolio to bonds or seek other alternatives, depending on the state of the market at the time.
4. Retirement Strategy Should Evolve With the Market
Markets change, and retirement portfolios shouldn't remain on autopilot. Active monitoring, tax-aware investing and adjusting to changing conditions may help investors avoid unnecessary losses while capturing opportunities.
Kao suggested the “key” for retirees is to choose a strategy “that is attuned to the financial market.” That kind of strategy requires “understanding the current risks in the global markets and then investing in areas with a competitive edge, while avoiding sectors with excessive risk,” he said.
In a nutshell, what retirees don’t want, he said, is to “get stuck holding the bag when an investment enters an obvious downtrend. These days, profits can evaporate quickly."
5. Efficiency Wins Over Gains
If someone could make just one retirement improvement this year, they should not simply save more, Chow said. Instead, they should make their existing portfolio more efficient through better tax diversification, thoughtful risk management and a strategy that adapts as both markets and retirement evolve.
“Talk to a competent professional who knows what they are doing," he said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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