Retirement planning: How to ride out market moves and protect your legacy


We discuss how both men and women manage retirement during volatile markets.


Outside the realm of fortune telling, the inability to forecast the future can make it difficult to reach your life goals. For those heading into retirement or already living their golden years, the unpredictability of life events can be an added stressor.

Making the shift from pre-retirement to post-retirement thinking requires complex planning – particularly when it comes to managing unpredictable markets.

A recent survey of high-net-worth-individuals (HNWIs) found unpredictability is one of their greatest challenges in meeting their life goals.

Commissioned by RBC Wealth Management, The Economist Intelligence Unit (EIU) undertook a study of 1,051 HNWIs, including 365 respondents in the U.S., from March to May, 2018. The new face of wealth and legacy survey explores how the meanings of legacy and wealth are being redefined across regions, genders and generations.

“The inability to predict the future becomes an even bigger issue in retirement and influences the way people approach funding their lifestyle,” says Angie O’Leary, head of wealth planning for RBC Wealth Management-U.S. in Minneapolis. “Everyone needs to make sure they are managing risk in retirement and taking market volatility and taxes into consideration.”

Attitudes toward investing changed after the financial crisis of 2007/08, says Janet Engels, director of the Portfolio Advisory Group for RBC Wealth Management-U.S.

Engels explains that by reviewing your goals, objectives and understanding your tolerance for risk, the ability to ride out a period of volatility is easier.

Gender and personal differences in portfolio strategies

The EIU research shows both men and women believe professional financial resources are more important to personal wealth planning now than in previous generations, although slightly more men (76 percent) than women (72 percent) agree with that statement.

Yet women and men are very different when it comes to investing styles and interacting with financial advisors in order to plan for their future. Men keep score, while women think more about the purpose of wealth, says O’Leary.

“When we have planning discussions with couples, men want to see numbers and women want to know if they will be OK,” says O’Leary. “Women want to know what different choices will mean for their family.”

A wealth plan can help smooth gender differences as well as behavioral biases that can impact your financial plan. For example, O’Leary’s parents were business owners who were used to leveraging debt to build the business, while her husband’s parents never held any debt. O’Leary and her husband have had complicated conversations about using debt to build wealth, she explains.

“Identifying your biases and understanding your plan helps you stay the course and makes the noise of the market and other distractions secondary,” says O’Leary. “Every conversation about retirement and wealth planning includes a discussion about how you are accumulating and growing your wealth, how to fund your lifestyle now and in the future, how to preserve and protect your wealth and how to leave the legacy you want.” 

Retirement timeline needs consideration

Early in their careers, investors can take advantage of the length of time their money can grow and their ability to recover from potential losses.

“It’s important to realize that with greater longevity, people can be retired for as long as 30 years,” says O’Leary. “You need to stay invested for the long haul when you start retirement because you still have a 25-year time horizon. De-risking isn’t always in your best interest.”

A personalized wealth plan, based on an understanding of the client and the client’s family expectations, concerns, goals and needs, must be in place to make wise investment decisions.

“Everyone needs to plan for how they will pay for health care, when to take Social Security benefits and planned distributions,” says O’Leary. “There are milestones that need to be addressed such as Medicare and required minimum distributions.”

Planning for the unplannable

A wealth plan needs to be continually updated and designed to help families weather unpredictable events such as a health issue, divorce, an untimely death and even market volatility.

“It’s important to focus on what you can control and protect against what you can’t control,” says O’Leary.

A robust emergency fund and other sources of liquidity are essential to helping you manage a “sequence of returns” risk. “If you have to take money out in a down market, you’ll take a huge hit that can be difficult to recover from,” says O’Leary.

The most disastrous impact can be a severe market correction early in your retirement at a time when you are forced to sell, says Engels, because it can take time to get back on track.

“The key is to have sufficient cash flow in any given year, so you can avoid selling and avoid disrupting your asset allocation,” says Engels.

Liquid cash that could cover expenses for a few years is the first level of protection O’Leary recommends, followed by a line of credit against your securities or a home equity line of credit that could be accessed if needed.

For liquidity, O’Leary recommends short-to-medium term investments such as bonds or certificates of deposits (CDs) that are not market-focused and can be used to replenish your income stream and your emergency fund.

Investment vehicles for a smoother retirement

Diversification is essential for risk management in retirement, says O’Leary.

“After years of accumulating wealth, retirement assets come in all shapes and sizes that differ both in legal titling and tax obligations. This makes planning and managing risk for the next 30 years a more dynamic process.”

The first step and most important decision in managing volatile markets in retirement, says Engels, is to assess your risk profile, time horizon and identify appropriate asset allocations between stocks, bonds and cash.

“The second step is to determine the best vehicles for your assets, which is usually based on the liquidity needed in the account,” continues Engels. “You need a mix of investment types, each of which has different degrees of liquidity and tax consequences, such as individual equities, individual bonds and mutual funds and alternative non-market correlated investments.”

And with more volatility likely ahead, investors need to avoid knee-jerk reactions to the headlines.

“We’ve all met people who panicked during a volatile market and didn’t seek advice,” notes Engels. “The important thing to understand is that helping clients see the bigger picture and having a plan for reaching their most important goals is what financial advisors do for a living. They can help take the emotion out of investing and talk to you during uncertain times to help you stay the course.”

Creating a personalized wealth plan for your retirement goals that addresses all of your needs and considers your appetite for risk will help you have the confidence to navigate the uncertainties that lie ahead, including having a plan to turn to during inevitable market fluctuations.

The minimum investable wealth of respondents was US$1 million. The margin of error on the U.S. sample is 5.1 percent with a 95 percent confidence level.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

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