“It’s important not to confuse risk with volatility because volatility is something we have to live with,” Ms Benz said. “Checking your liquid and near-liquid reserves is one way to understand how much of a buffer you have and how long you can sustain a downturn.”
For those looking to improve their flexibility, or the ability to avoid selling in a volatile market, she often asks people to consider the answers to a range of questions, including: What would it look like to get a job to find one that replaces the income you need to generate your portfolio? What would your expenses look like if you cut back? She encourages people to consider incremental moves or changes, citing an example of a couple who wanted to live on the commuter train in Chicago but decided to move further away from the city center, where housing was more affordable. The new place gave them access to the city, but at a cost of their previous home.
Wait for social security
According to William Reichenstein, head of research at Social Security Solutions in Overland Park, Kansas, and professor emeritus at Baylor University, delaying taking Social Security benefits is becoming an even more effective strategy in bumpy markets.
“The best recurring part of your bond portfolio is actually the Social Security deferral,” said Dr. Reichenstein. “Why do most people start as fast as they can or almost as fast as they can? My strong expectation is that they have not learned delayed gratification.”
According to Boston College’s Center for Retirement Research, the number of people seeking benefits in their early 60s has declined in recent years, with only about a quarter of eligible 62-year-olds in 2019.
According to the calculations of Dr. Reichenstein, assuming a healthy retiree with an average lifespan, deferring benefits yields an 8 percent return each year that they defer. For example, a 67-year-old would receive 108 percent of his or her expected benefit by waiting until age 68, and 116 percent by delaying until age 69. Conversely, those who previously, at age 62, receive only 70 percent of their expected benefit with incremental increases each year they postpone.
As an example, take a 62-year-old with a life expectancy of 90 who started collecting a monthly check for $1,400. If he or she had waited to start benefits at age 70, with the same life expectancy, the 62-year-old would have received an additional $124,800 in real benefits — not taking into account the rise in the cost of living — and he would break even at age 80 and five months, he said.
