Eric: Hello David. Thanks for joining us today.
David: Hello.
Eric: We know that retirees run serious risks of running out of money, what are some of the risks faced by pre-retirees who are less than five years away from retirement?
David: It's important to remember that there is a specific window of time when risk management is most important. This window is five years before and five years after retirement. A loss in a pre-retiree's portfolio can delay retirement and significantly reduce the money they have available to fund their retirement. The impact of a loss in a pre-retiree's portfolio can be particularly significant when there is less time to recover before retirement. If a loss occurs in the years leading up to retirement, there may not be enough time to rebuild the portfolio through new contributions or investment growth before the onset of retirement. This means that pre-retirees may have to adjust their retirement plans to account for the reduced value of the portfolio. In some cases, a significant loss before retirement could delay retirement by 2, 3, or even 4 years.
Eric: David, are there any particular strategies that a pre-retiree can implement with a financial advisor?
David: Yes. Getting ready for retirement requires professional guidance, in my opinion, and some precise strategies for managing risk. That's why professional advice is so important for getting it right, and essential for anyone who's less than five years into retirement. For pre-retirees, shifting from growth-oriented investments to cash-flow-producing assets is one such strategy. These assets have the potential to generate income to meet future needs, and pre-retirees can benefit from their ongoing reinvestment of cash flow to buy more units of their investments. This is akin to planting a sprout that grows continuously beside a tree, offering greater shade and protection over time. By reinvesting cash flow, pre-retirees can multiply their growth and enjoy a larger portfolio when they retire. Cash flow-producing assets also tend to be less volatile, which can help reduce the impact of market shocks on the portfolio. With the right strategies, pre-retirees can be better prepared for a secure and comfortable retirement.
Eric: Thank you, David, for this information, and see you next time.
David: Thank you.
