After years of building your savings and investments, a sudden market downturn can make you worry if your nest egg will last through retirement. This scenario is a common concern for many Californians nearing or already in retirement.

The good news is that you can take steps to strengthen your portfolio before a major stock market crash.

This blog by Bulman Wealth Group will cover five essential strategies for building a more resilient investment strategy that can better weather economic storms.

Our team of financial advisors with a fiduciary duty has decades of experience in wealth management and crafting California-specific retirement plans that aim to help our clients feel more confident about their financial future.

The Threat: Market Downturns and Retirement Risk

Market volatility is a normal part of the investment cycle but can be very unsettling. Here are some ways that market downturns can impact retirement portfolios:

• Short-term losses: A market pullback can cause your portfolio’s value to decline, which can be emotionally draining.
• Loss of confidence: Volatile markets can lead to fear and uncertainty, causing some investors to make impulsive decisions, such as selling their investments at a loss.
• Sequence risk: This refers to the risk of market downturns happening around or during retirement. Selling investments at a loss to cover retirement expenses can significantly impact the longevity of your portfolio.
• Long-term recovery: While market downturns can be temporary, they may still have lasting impacts. Significant losses near retirement may take years to recover, testing investors’ patience.

California-Specific Retirement Concerns

Beyond the general impact of market downturns, Californians face some unique challenges:

• Increasing cost of living: California’s high cost of living can make saving for retirement and weather economic recessions more challenging.
• Housing market fluctuations: The volatile California housing market can impact home values, affecting retirees relying on home equity. Also, high insurance costs and expenses from natural disasters like wildfires and earthquakes can add to the financial strain.
• High taxes: California has some of the highest state taxes in the nation, which can eat into retirement savings and impact your ability to maintain your desired lifestyle.

By understanding these threats posed by market downturns, you can take steps to mitigate significant risks to your retirement planning in California.

Five Strategies for Strengthening Your Retirement Portfolio

Although market downturns are beyond your control, here are five strategies to consider for building a more resilient portfolio.

1) Diversification is Key

We all know the adage, “Don’t put all your eggs in one basket,” yet it’s surprising how many investors are overly concentrated in a single asset or investment category. A resilient portfolio starts with diversification. This means spreading your investments across different asset classes like stocks, bonds, cash, and real estate.

Further diversification can involve looking beyond traditional asset classes. Some investors might consider alternatives like commodities, private equity, or hedge funds, which can offer additional diversification benefits.

The next step is choosing an asset allocation that matches your risk tolerance and time horizon.

2) Asset Allocation Based on Your Risk Tolerance

Your risk tolerance is your comfort level with investment volatility. Younger investors with a longer time horizon may be able to tolerate a higher percentage of stocks in their portfolio, while those nearing retirement may prioritize stability with a higher allocation to bonds and cash.

It’s vital to assess your current risk tolerance to make sure it fits with your present investment strategy. Over time, your risk tolerance may change based on market performance and your circumstances. Rebalancing your portfolio periodically helps ensure your asset allocation stays aligned with your evolving needs.

3) Don’t Panic, Stay Invested for the Long Term

Market pullbacks are inevitable, but trying to time the market by buying and selling based on short-term fluctuations can be a recipe for disaster.

For example, if you had invested $10,000 in the S&P 500® Index from January 1, 1980, to December 31, 2022, your investment could have grown to $1,082,309. However, if you missed just the best 50 days during that period, your returns would have been significantly lower, growing to only $76,104.​

Avoiding impulsive, emotion-driven decisions and focusing on long-term goals is crucial for effective retirement planning.

4) Utilize Tax-Saving Strategies

Although controlling the markets is impossible, you can potentially reduce your tax burdens. Here are some examples.

Maximize retirement plans: Take advantage of employer-sponsored plans by contributing pre-tax salary to reduce taxable income. If you’re eligible, consider catch-up contributions and traditional or Roth IRAs for potential tax benefits.

Tax-efficient investment strategies: Consider income-producing assets that pay qualified dividends at a lower tax rate, California tax-free municipal bonds, and tax-managed mutual funds. Also, manage capital gains and losses by practicing tax harvesting.

Withdraw strategies: Plan your distributions strategically across tax-deferred, taxable, and tax-free accounts to minimize the tax impact during retirement.

Specific retirement tax benefits in California vary depending on individual circumstances. It’s wise to consult with a Bulman financial advisor in California for personalized advice.

5) Include Medical and Long-Term Care Planning

Healthcare costs are one of the biggest expenses for retirees, and they tend to increase with age. There are several ways to approach healthcare and long-term care planning in California, including:

• Medicare and Medigap: Familiarize yourself with Medicare and supplemental Medigap plans to help cover medical expenses.
• Long-term care insurance: Consider purchasing long-term care insurance to protect your assets in case of a prolonged illness or injury that requires ongoing care.
• Health savings accounts: Contribute to an HSA for tax-free withdrawals for eligible medical expenses. You can also use HSA funds for Medigap and long-term care insurance premiums.

Planning for retirement in California during volatile markets involves carefully considering many factors. Partnering with the professionals at Bulman Wealth equips you with the experience needed to pursue financial confidence in retirement.

Seek to Build More Financial Confidence With Bulman Wealth

At Bulman, we understand the unique challenges Californians face when planning for retirement. Our team of financial advisors with a fiduciary duty will help you create a personalized plan that considers your risk tolerance, goals, tax situation, healthcare needs, and California-specific factors.

With proper planning and guidance, you may approach retirement more confidently, knowing you’ve taken steps to build a better investment strategy.

If you have any questions or want to discuss your retirement planning in Northern or Southern California, please don’t hesitate to contact us or call (916) 458-8199.