5 Easy Steps to Manage and Control Your Nest Egg in Retirement

Controlling your Nest Egg in Retirement and avoiding large losses is more important than chasing investment returns when you are in retirement.

By developing a written strategy to manage your nest egg in retirement you can go a long way to protecting it. Such a strategy can be independent of any particular investment but applied generally to all investments in your nest egg.

The financial planning industry can tell you what to invest in and can buy and sell them for you very efficiently. Unless you have a unique investment or a very talented investment adviser then your money is probably in the same investments as the rest of us Baby Boomers. So forget about trying to get an edge in the market.

They will also tell you that timing the market and stock picking do not work.

So they would have you believe you should have faith when investing in the market.

They tell you a well diversified portfolio with proper asset allocation will work for you in the long term, protect your nest egg and help minimize losses. What happened in 2000-2003 then?

In the small print they tell you they do not guarantee the projected returns they give you in their portfolio proposal that you sign off.

If they are so convinced of their investment proposal and the long term averages they use are so reliable, why don’t they guarantee their forecasts?

It is because investing in stocks and mutual funds is a risky and unpredictable business. They really have no idea, just like the rest of us. The recent market turmoil attests to that.

So if you decide to follow their advice because you believe you will get better returns to offset inflation and live on in retirement, at least take control of your nest egg.

I’m assuming you are in retirement or moving towards retirement and your income is reducing. But it could apply to anyone really.

What can you control?

If you are not already fully invested you can control when you enter a market. This could be by waiting for a retracement or it could be by using dollar-cost-averaging for instance. In retirement a more cautious approach might be to add to your positions over time rather than put in a lump sum.

You can control when you exit a market. The first rule in retirement is to avoid large losses so you need to have a stop loss strategy in place. You and your financial planner should work out what you are prepared to lose on any one asset before you exit that market. It may be that you might want to sell 50% at 5% stop loss, then 25% of what is left at 10% stop loss, and so on. The stop loss may be a programmed stop or a mental stop. Regardless of the method make sure you and your financial planner have a written statement of the stop loss strategy and how to implement it. In the short term large losses will seriously damage a nest egg.

You can control the fees you pay to your financial planner. Percentage fees above 1% should be avoided. There are plenty of fixed fee financial planners, but you should still negotiate their fees before using them. In the long term high fees will seriously damage a nest egg.

You can control the meeting with an agenda you provide and take proper minutes of what has been said and agreed to. Then action items can be checked at the next meeting. Actively managing your nest egg in this way will keep you in control.

You should also instruct your financial planner to alert you to any potentially dangerous situation that could affect your nest egg so you can both work on a plan to minimize the impact. Sometimes something will happen in the market that no one could have seen. But that should initiate a meeting to discuss it and its ramification on your nest egg and appropriate plans drawn up and agreed to to hopefully manage your nest egg through the situation. The recent sub-prime situation is a good example of the need for an emergency meeting with your financial planner. Sitting on the side-lines and doing nothing may be an appropriate strategy but you and your financial planners should agree that it is, or put in place alternative plans. By the way “Cash is a position” and should be considered. The old axiom of “if you do not understand what is happening in the markets – get out” still applies, especially when we are in retirement.

I learned the important of money management and avoiding large losses when I traded futures and CFD’s which are highly leveraged instruments.

Remember this, financial planners are not good at protecting your investments from the downside. They use high sounding phases like “you are investing for the long term” to avoid actually protecting your money. But this can cause your nest egg serious harm in retirement.

What you need to do is implement a strategy or control system that is independent of risk-based investments. It’s all about management and control of your nest egg in retirement. Make your financial planner a partner in this process and do not abdicate your responsibility for your nest egg.

What I mean is this. Do this yourself or with your financial planner.

Draw up a written strategy to manage your investments whatever they are. The investments are not relevant to managing your nest egg. If you decide to invest in risk-based assets like stocks and mutual funds because you believe you will get better returns and offset inflation, realise they go up or down and this is out of your control. So apply the controls discussed in this post. Set up the 5 easy steps to manage and control your nest egg in retirement. This way you and your financial planner can work together to ensure you have a long and happy retirement.

Leave a Reply

CommentLuv badge