(TNS)—You’ve been through volatile markets before. You know not to sell in a panic.
But if the recent market gyrations have your attention, putting a few rainy-day strategies in your retirement game plan—particularly if you are in your 60s—can help you make the best of the situation.
Delayed retirement credits—the 8 percent per year pickup in income you get for delaying claiming past your full retirement age up to 70—are a great deal. Some advisers even recommend spending down an investment portfolio as a way to delay. But if that means pulling income out of a wounded portfolio—or if you could be ensnared by Medicare cost hikes next year—it might be time for a rethink.
If you already started Medicare and were planning to begin Social Security benefits sometime in 2016, think about accelerating those plans, says Michael Kitces, a financial planner, blogger and research director at Pinnacle Advisory Group. With Medicare Part B premiums set to increase next year, most Social Security recipients can take advantage of the program’s “hold harmless” provision, which caps premium raises at a beneficiary’s Social Security cost of living adjustment, which next year is zero, Kitces says. (Be aware this won’t work for high-income beneficiaries who will be subject to Medicare’s surtax.)
“Accelerating a bit more to take advantage of the Medicare hold harmless rules may be appealing, but the decision whether or not to delay Social Security is still dominated more than anything” by your ability to forgo benefits, which if you can do it will be more valuable, he says.
Tapping some home equity is another way to avoid taking retirement income from stock funds, but traditional home equity lines of credit can be frozen in certain market conditions.
If you’re 62 or older, it might make sense to establish a line of credit using a reverse mortgage (under the federal home equity conversion mortgage program), says Shelley Giordano, principal of Longevity View Associates, a reverse mortgage consulting firm.
Shop around for lenders because Giordano says some are offering low or no closing costs in exchange for a slightly higher starting interest rate. Some also will allow a homeowner to establish a credit line with just a nominal initial amount, such as $50.
Hopefully, you have investments outside the stock market from which you are drawing money for day-to-day expenses. Likewise, if you’re still a few years from retirement and gradually pulling money out of the market to create a retirement income stream, you can afford to take a pause in that strategy to let markets stabilize.
At some point, however, you’ll need to refill those buckets and make withdrawals, and who’s to say the market won’t be in even worse shape a few years from now?
The question becomes, are we there yet? Should investors refrain from withdrawing from stock funds, even if it’s part of a longer-term rebalancing strategy? Should retirees think about forgoing an inflation bump, or even taking a pay cut?
“On a year-to-date basis the market is down 6 percent or so, so we’re not in a correction mode yet,” says Judith Ward, senior financial planner with T. Rowe Price, as markets were rebounding somewhat.
If the correction deepens to more like 20 percent by year-end, she says, that’s when she might suggest forgoing the inflation raise.
Of course, it never hurts to start thinking about expenses you could cut out if that day comes.
A market decline can be a good time to convert money in a traditional IRA to a Roth IRA because you can convert more shares for the same taxable withdrawal, but you also have to assess whether converting makes sense at your age, experts says. Do it if you’re trying to diversify retirement income tax liabilities or leave money to heirs, but otherwise it makes less sense at this age, experts say.
It could also be wise to take withdrawals from variable annuities and certain life insurance products while asset prices are down, says Michael Goodman, an accountant and financial planner with Wealthstream Advisors Inc.
And if you’ve been looking for an excuse to end a bad relationship with an adviser, leaving now could be a good time because if it involves selling some positions, you could owe less in capital gains taxes.
“Determine if your investments were allocated properly and what the new adviser will do differently” before jumping ship, cautions Candace Bahr, managing partner at Bahr Investment Group.
Even if you don’t have an adviser, if you weren’t allocated well, do something about it rather than sitting on your hands, says Michael J. Garry, an adviser and estate planning attorney with Yardley Wealth Management.
“If you’ve kept too high an allocation towards stocks trying to ride the run-up, then I’d say this is the time to hop off and get to the right allocation,” he says.
Janet Kidd Stewart writes The Journey for the Chicago Tribune.
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