Retirement is a time in life when hard-earned savings become our primary source of income. For those who have invested in the stock market, it’s important to pay attention to investment portfolio performance as it could significantly affect your retirement budget. After all, every dollar counts when you’re living on a fixed income! Understanding how retirement spending should adjust based on changes in the financial markets is key to ensuring that you don’t outlive your resources and continue living comfortably after leaving the workforce. In this blog post, Anthony Pellegrino discusses how retirees can make adjustments to their spending levels based on their current investment portfolio performance.
How Should Retirement Spending Adjust To Investment Portfolio Performance? Anthony Pellegrino Answers
It is important, as per Anthony Pellegrino, to understand that retirement spending should adjust according to investment portfolio performance. As a retiree, it could be necessary to adjust your spending based on the changing markets and economic conditions. The key is to plan ahead and have some level of flexibility built into your retirement planning strategy.
When building out a retirement savings plan, one should typically plan for a consistent rate of return over time. This can be done by having a mix of investments that are allocated in the right way so that you don’t overexpose yourself to too much risk at any given point in time. A common guideline used for asset allocation is to subtract your age from 110 (or 120) and invest that percentage of your money in stocks as part of a diversified portfolio. So, if you’re 30 years old, you would have 80% (or 90%) of your money in stocks and the rest in bonds and cash.
Over time, as you get closer to retirement age, it’s generally advisable to start moving more of your money into bonds and cash so that you don’t have as much exposure to the stock market’s ups and downs right before and during retirement. This is often referred to as “asset location.”
Once you do retire, how should you adjust your spending in response to changes in the value of your investment portfolio?
The most important thing to remember, as per Anthony Pellegrino, is that you will likely need to make some adjustments in order to protect your retirement savings from being depleted too quickly. If the value of your portfolio drops, you may want to reduce or even temporarily suspend your withdrawals until it recovers. On the other hand, if you find that the value of your investments has increased significantly, you can adjust and increase your spending accordingly.
Anthony Pellegrino’s Concluding Thoughts
It is also important, as per Anthony Pellegrino, to keep an eye on inflation when adjusting spending during retirement. As prices rise over time, so should your spending in order to maintain a certain standard of living. According to data from the U.S. Bureau of Labor Statistics, the rate of inflation for 2020 was 1.4%, compared with 2.3% in 2019 and 2% in 2018. That means that purchasing power has decreased slightly, so retirees should adjust their spending accordingly.