How to invest as you near retirement

Last year’s market volatility upended even the best-laid plans. Some tips on how to rethink your strategy

Watching the market every day is like weighing yourself every day: The daily fluctuations can be upsetting and not all that helpful, as it’s the longer-term trends that matter. Last year’s volatility was a case study in the challenges of assessing whether equanimity or an investing overhaul is warranted. This year brings a fresh opportunity to evaluate if your savings are still invested in a way to meet your goals under the current conditions. The squeeze of inflation and higher interest rates means a mild U.S. economic recession is still on the table, according to the 2023 outlook reportOpens in a new window by Nuveen’s Global Investment Committee, and we’re not yet out of the bear market for stocks. But it’s not all bad news: We have some tips to consider for people on the brink of retirement as well as those with 10 years to go.

The upshot, for all savers: Make sure you’re well-diversified and, if appropriate, taking advantage of strategies that can help assuage the sting of falling markets. “Extreme volatility is a call to action for having a plan regardless of how far you are from retirement,” says John Canally, IMG Chief Portfolio Strategist for TIAA.

“The beauty of allocating to a fixed annuity is that it can help dampen the effect of markets falling in the years approaching retirement.” 

Retirement is 10 years away

Even with a decade to ride out the market ebbs and flows, this is the time to reexamine your portfolio. If recent market gyrations felt too stressful, perhaps it’s time to speak with your advisor about your tolerance for risk, what outcomes you might expect, and whether your asset allocation is appropriate considering your overall financial plan.

Resist the urge to make rash decisions—such as exiting the stock market—based on last year’s volatility or what you’re hearing through the media. History shows that people have a penchant for stepping out of the market at the wrong times and then waiting far too long to get back in, often selling low and then getting left behind in the next bull market. Ten years is generally equivalent to a full market cycle.

“Markets move very quickly, and if you’re not invested, you can miss the opportunity,” says John Canally, Managing Director, Chief Portfolio Strategist, Investment Management Group at TIAA.

Retirement is five years away

Many people wait too long to plan where they will generate income once paychecks from work stop. The time to figure out your post-work income sources is not the day you retire. Talk to your financial advisor early about a preliminary retirement income plan and how to diversify your potential sources of retirement income. There are also tax strategies to consider, and you may want to rearrange your assets prior to retiring. Make sure you’re taking advantage of all tax-deferred accounts and catch-up contributions to your employer plan and IRA, if eligible. Consider adding a fixed annuity, which can provide payments for as long as you live. You can use this to save for retirement as well. 

It may be time to hand the reins of your asset allocation to a professional portfolio manager trained to think holistically about how to capture income opportunities and risks. 

Retirement is one year away

You’re on the cusp of stepping away from full-time work, and it’s time to revisit your retirement income plan and shore up what kind of investment portfolio can help replace your monthly wages. 

While every situation is unique, TIAA’s rule of thumb is to start by dividing your income sources into roughly one-third from annuity payments, one-third from Social Security and any pension payments, and the rest from withdrawals from investments and savings. Thinking about it another way: two-thirds from sources of guaranteed income, one-third from savings that is more exposed to market volatility. This ratio helps mitigate the possibility of a market downturn significantly eroding your assets earmarked for future income. Annuity payments early in retirement can help gird against market volatility and set you up to avoid drawing Social Security before age 70. Every year you can delay drawing benefits after age 62 is a guaranteed 8% increase in benefits; you won’t find that kind of return in the markets. 

Speaking of markets, annuity payments can help in the early years of retirement, too. Says Canally: “The beauty of allocating to a fixed annuity is that it can help dampen the effect of markets falling in the years approaching retirement. This can have the effect of extending how long you receive retirement income, and potentially the size of the nest egg you leave to your beneficiaries.”

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.

Annuities are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Payments from variable annuity accounts are not guaranteed and will rise or fall based on investment performance. Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.