The Journal of Business interviewed one of our Quantum planners for this discussion of market behavior in April 2020.
Retirees should consider lower monthly distributions
Retirees and those planning to retire soon may have been shaken by the volatile behavior of the U.S. stock market in recent weeks, but experts here say it’s not time to panic.
Eric Green, financial adviser and founder of Purpose Financial Advisors LLC, in downtown Spokane, recalls another harrowing time for investors: Black Monday of 1987, when the stock market experienced what was then the largest single-day stock market drop in history.
“That was a scary time, just like this has been,” Green says. “Since that time, there have been lots of other things like that that make people fearful about their investments. We’ve recovered from every single one of them.”
In addition to offering that reassurance, Green says it’s generally best for investors to stay the course of the plan they’ve set with their financial adviser.
“The market is so different than it was a month ago, but the planning is still the most important part,” Green says.
Those who have not yet retired should ensure that their portfolio is balanced, he says, meaning investments aren’t solely placed in stocks.
Eric Christiansen, financial planner and managing member of Spokane-based Quantum Financial Planning Inc., says preretirees shouldn’t stop making contributions to their 401(k) or Roth IRA accounts, nor should they lower their monthly contribution amount, if they can avoid it.
“If you can afford to, this is the time you want to contribute more,” Christiansen says. “What you’re really doing is dollar-cost averaging on a monthly basis … your average share price is cheaper. If you’re buying every month and then the market’s down, you’re buying more shares. That’s a good thing, and you don’t want to stop buying.”
Green also says now is an excellent time to invest additional funds in stocks.
“The stock market’s suddenly on sale, 25% off,” Green says. “You might look at this as an opportunity to invest in good stocks at a great price. Stocks are still a great place to invest for retirement.”
For those who can do so, Christiansen says it could be a good idea to cash in bonds and invest the money in their 401(k) stock portfolio.
“If we’re off of our target allocation, we want to take advantage and use this as an opportunity to purchase stocks,” Christiansen says.
Don Morgan, accredited investment fiduciary and financial consultant at Spokane Valley-based Independent Wealth Connections, however, cautions against investing more for those whose finances have been strained due to COVID-19.
“Money that goes into the stock market should be money that’s intended for access five years or more from now,” Morgan says. “If you don’t have extra money, you shouldn’t be trying to find money to throw into a 401(k) plan right now.”
Investors shouldn’t alter their retirement plan without input from a financial planning professional, Morgan adds.
“This is the worst possible time to try to change what’s inside your retirement plan, because you’re probably going to get the timing wrong,” he says.
Green says that under the Setting Every Community Up for Retirement Enhancement Act, which went into effect Jan. 1, retirement plans will soon be able to offer annuities through a 401(k).
“The reason they’re doing that is to provide 401(k) participants with another valuable investment option that has some insurance guarantees,” Green says.
Christiansen says that if people who are already retired are finding that they’re spending less during the COVID-19 pandemic, they should consider lowering their monthly distributions.
“I was talking to a client this morning, and they said, ‘We’re actually spending less because we’re not going anywhere, we’re isolated to our house, so let’s cut down for the next three months and reduce our monthly income,’” Christiansen says. “Clients are thinking that direction, and that’s a good thing.”
The most important thing for investors to understand, Christiansen says, is that the market is going to continue to be volatile for at least the next several months.
“Expect more volatility, but don’t panic. Once the economy comes back, and people are working again, we think it’s going to happen quickly.”