Kiplinger: In tough economic times, new retirees need a financial plan

The retirement landscape is heavily impacted by economic volatility stemming from high levels of inflation, so anyone who is about to retire or has just retired would be well suited to building a a financial plan. This plan could be optimized with a reverse mortgage, according to a column published this week on Kiplinger.

“A portfolio tends to be most important near retirement, just before those savings are about to be withdrawn,” the column says. “These days, however, most wallets have lost value; the S&P 500 is down about 20% since the start of the year. The financial industry has a name for this scenario: return risk sequence.

Wade Pfau

This type of risk was discussed a lot by Wade Pfau, professor of retirement income at the American College of Financial Services in King of Prussia, Pennsylvania, who spoke to Kiplinger for the story.

“You have to sell more stocks to get the same amount of money. Those stocks then disappear even if the market bounces back, your portfolio won’t recover as much,” he said.

However, for someone further into retirement, that risk is less pronounced, the column reads.

“Streak of return risk is less of a concern for someone further into retirement, as retirees generally opt for safer, more conservative investments and have fewer years to pay,” the column says. “Additionally, these investors may have benefited from portfolios boosted by strong returns in early retirement.”

However, a plan for a bad situation is always advisable, and there are situations where a reverse mortgage could fit well into such a plan, the column says based on Pfau’s comments.

“Pfau also suggests looking at your other assets, like borrowing the cash value of a life insurance policy or using a reverse mortgage to tap into the equity in your home, as alternative sources of income while the market is down,” the column reads. “When the market recovers, it says it’s up to you whether you want to repay those loans, depending on how much you want to leave to heirs.”

Other tips for overcoming the current economic challenges might include reducing a withdrawal rate; adding new diversity to a portfolio to potentially make it more resilient to different pressures; or the consideration for an annuity.

Read the column to Kiplinger.