Positioning for recovery: How to buffer, secure and optimize your assets

As last year's uncertainty gives way to an increasingly robust economic recovery, COVID-19 will likely continue to influence global economies, creating pockets of uncertainty and challenges in the months ahead. In addition, expectations for lower bond market returns in the coming years and ongoing market volatility will require investors to remain nimble when it comes to seeking risk-adjusted returns aligned with their time frame and goals.

"Today's rapidly evolving market and economic environment continues to underscore why planning is so important," said TIAA Chief Financial Planning Strategist, Dan Keady, CFP^®. "Your financial plan not only provides a valuable roadmap for the future, but a structure you can draw upon to buffer, secure and optimize your assets as circumstances and conditions change."

According to Keady, knowing which of these levers to pull and when was critical in 2020, as global uncertainty and unprecedented volatility gripped the markets. He believes each of the levers—creating a buffer, securing income sources, and optimizing assets—will continue to play an important role for investors seeking to remain on track toward their goals as the economy recovers.

1. Create a buffer

That's why your investment time line plays such a critical role. "People often forget that they don't need 100% of their assets the day they retire," he said. "If you're age 65 and just preparing to retire, you're still a long-term investor. You need that portfolio to continue generating income and growth for another 20 years or more in retirement. Equity investments remain a key part of your portfolio for long-term growth."

It's also important to remember that even if the value of certain mutual fund shares that you own decline, the number of shares you own does not. As long as you remain invested, you preserve those shares of ownership. That's critical for recovery—when the markets begin to rise again because you have not sold any shares. However, if your plan is to get out at the first sign of volatility and buy back when prices begin to rise again, more likely than not, you'll be buying in at higher prices, meaning you'll end up with fewer shares than you own now.

That's where having adequate "buffer" or cash reserves can play an important role, especially for retired investors who may rely on income from their portfolios. Following the severe decline in equity values early last year, many retirees were able to create a "buffer" by taking income from their emergency savings instead of their investment portfolios to avoid solidifying losses, until the markets had adequate time to recover.

2. Secure your income

Access to guaranteed income sources can also help create a buffer, which can help reduce concern or anxiety about the direction of the markets at any given time. Begin by determining how much of your income is (or will be) derived from guaranteed sources in retirement, such as Social Security, pensions and other lifetime income sources such as fixed annuities.

"If you're retired and this income adequately covers your current lifestyle needs, you may not need to make any adjustments," Keady said.

That's because guaranteed income sources, such as Social Security retirement benefits and lifetime income from fixed annuities, provide a set amount of income each month and are not subject to market fluctuations.

Assess your guaranteed income sources if you're planning to retire within the next 12 months.

You also want to assess your guaranteed income sources if you're planning to retire within the next 12 months. If you'll have enough income from guaranteed sources to cover your essential needs and lifestyle wants, you may be able to retire as planned. However, if those guaranteed income sources fall short of covering much of your lifestyle expenses, you may want to hold off on retiring for another year or so to allow your long-term investment accounts more time to grow, unless you are clearly funded in your financial plan. As always, make sure to talk to your advisor before making any changes to your plan.

3. Optimize your assets based on your goals

Your goals are another area where levers can be pulled to help improve short-term cash flow and longer-term investment needs in any market climate. That's because the goals you've identified and prioritized during the planning process drive your income needs over time.

For example, many people had to delay certain goals last year, such as travel and entertainment. The health and economic crisis also led many to reevaluate their priorities, especially around saving and spending, as more people stayed at home. Others took the opportunity to invest excess savings while market prices were at more advantageous levels, with the goal of increasing their overall units of ownership as the markets began to recover.

Your goals are another area where levers can be pulled to help improve short-term cash flow and longer-term investment needs in any market climate.

According to Keady, TIAA advisors continue to work closely with clients to address a broad range of scenarios to help realign their goals and priorities through our dynamic Life Goals Analysis (LGA) financial planning process. LGA enables TIAA advisors and their clients to prioritize goals, engage in scenario planning to stress test specific asset allocations and financial strategies, and optimize lifetime income sources, with the goal of creating clarity and confidence in any market or economic environment.

"We can't emphasize enough how important it is for people to continue to engage with their advisors as the economy recovers," Keady said. "Remaining on track toward your goals is dependent on making informed decisions that support your objectives and are fully aligned with your income needs, regardless of what the markets and economy are doing at any given time."

To learn more about the steps you can take now to buffer, secure and optimize your plan and remain on course toward your important goals, contact your TIAA advisor today to schedule time to talk. Your advisor is available to meet with you in person, or via phone or web conferencing, based on your preferences.