ILMA Compoundings September 2016 - 32

FINANCIAL FREEDOM Be Prepared to Retire in a Volatile Market Murray Carter, CFP®, AWMA® I n an ideal world, your retirement would be timed perfectly. You would be ready to leave the workforce, your debt would be paid off and your nest egg would be large enough to provide a comfortable retirement - with some left over to leave a legacy for your heirs. Unfortunately, this is not a perfect world, and events can take you by surprise. In a survey conducted by the Employee Benefit Research Institute, only 44 percent of current retirees said they retired when they had planned; 46 percent retired earlier, many for reasons beyond their control.1 But even if you retire on schedule and have other pieces of the retirement puzzle in place, you cannot predict the stock market. What if you retire during a market downturn? Sequencing Risk The risk of experiencing poor investment performance at the wrong time is called "sequencing risk" or "sequence of returns risk." All investments are subject to market fluctuation, risk and loss of principal - and you can expect the market to rise and fall throughout your retirement. However, market losses on the front end of your retirement could have an outsized effect on the income you might receive from your portfolio. If the market drops sharply before your planned retirement date, you might have to decide between retiring with a smaller portfolio or working longer to rebuild your assets. If a big drop comes early in retirement, you may have to sell investments during the downswing, depleting assets more quickly than if you had waited, and reducing your portfolio's potential to benefit when the market turns upward. Dividing Your Portfolio One strategy that may help address sequencing risk is to allocate your portfolio into three different buckets that reflect the needs, risk level and growth potential of three retirement phases. Short-term (first 2 to 3 years): Assets such as cash and cash alternatives that you could draw on regardless of market conditions. Mid-term (3 to 10 years in the future): Mostly fixed-income securities that may have moderate growth potential with low or moderate volatility. You might also have some equities in this bucket. Long-term (more than 10 years in the future): Primarily growth-oriented investments such as stocks that might be more volatile but have higher growth potential over the long term. Throughout your retirement, you can periodically move assets from the long-term bucket to the other two buckets so you continue to have short-term and mid-term funds available. This enables you to take a more strategic approach in choosing appropriate times to buy or sell assets. Although you will always need assets in the short-term bucket, you can monitor performance in your mid-term and long-term buckets and shift assets based on changing circumstances and longer-term market cycles. If this strategy appeals to you, consider restructuring your portfolio before you retire so you can choose appropriate times to adjust your investments. Determining Withdrawals The three-part allocation strategy might help mitigate the effects of a down market by spreading risk over a longer period of time, but it does not help determine how much to withdraw from your savings each year. The amount you withdraw will directly affect how long your savings might last under any market conditions, but this is especially critical in volatile markets. Vol. 66 No. 9 * 32 * September 2016 Compoundings

Table of Contents for the Digital Edition of ILMA Compoundings September 2016

FROM THE CEO
BOARD BRIEF
NOTES FROM MSCI
THE HEART OF ILMA
THE ARGUS ANALYSIS
VOICES & VIEWS
INTERNATIONAL INSIGHT
SPEAKER SPOTLIGHT
FAMILY BUSINESS
FINANCIAL FREEDOM
RULES & REGS
POWER PLAY
LEGAL EASE
THE WHITE PAPER
ADVERTISERS INDEX
ILMA Compoundings September 2016 - 1
ILMA Compoundings September 2016 - 2
ILMA Compoundings September 2016 - 3
ILMA Compoundings September 2016 - 4
ILMA Compoundings September 2016 - FROM THE CEO
ILMA Compoundings September 2016 - 6
ILMA Compoundings September 2016 - 7
ILMA Compoundings September 2016 - 8
ILMA Compoundings September 2016 - BOARD BRIEF
ILMA Compoundings September 2016 - 10
ILMA Compoundings September 2016 - 11
ILMA Compoundings September 2016 - 12
ILMA Compoundings September 2016 - NOTES FROM MSCI
ILMA Compoundings September 2016 - 14
ILMA Compoundings September 2016 - THE HEART OF ILMA
ILMA Compoundings September 2016 - 16
ILMA Compoundings September 2016 - 17
ILMA Compoundings September 2016 - 18
ILMA Compoundings September 2016 - 19
ILMA Compoundings September 2016 - 20
ILMA Compoundings September 2016 - THE ARGUS ANALYSIS
ILMA Compoundings September 2016 - 22
ILMA Compoundings September 2016 - 23
ILMA Compoundings September 2016 - VOICES & VIEWS
ILMA Compoundings September 2016 - 25
ILMA Compoundings September 2016 - INTERNATIONAL INSIGHT
ILMA Compoundings September 2016 - 27
ILMA Compoundings September 2016 - SPEAKER SPOTLIGHT
ILMA Compoundings September 2016 - 29
ILMA Compoundings September 2016 - FAMILY BUSINESS
ILMA Compoundings September 2016 - 31
ILMA Compoundings September 2016 - FINANCIAL FREEDOM
ILMA Compoundings September 2016 - 33
ILMA Compoundings September 2016 - RULES & REGS
ILMA Compoundings September 2016 - 35
ILMA Compoundings September 2016 - POWER PLAY
ILMA Compoundings September 2016 - 37
ILMA Compoundings September 2016 - LEGAL EASE
ILMA Compoundings September 2016 - 39
ILMA Compoundings September 2016 - THE WHITE PAPER
ILMA Compoundings September 2016 - 41
ILMA Compoundings September 2016 - ADVERTISERS INDEX
ILMA Compoundings September 2016 - 43
ILMA Compoundings September 2016 - 44
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