Episode #4: Managing Investment Volatility in Retirement

In this episode of the Retirement IQ Podcast, retirement wealth coach John Stregger unpacks one of the biggest risks to your retirement: market volatility. Learn why volatility can help during your savings years but harm you during retirement withdrawals, and how to protect yourself with smart strategies. John explains the cash wedge strategy, a proven approach to secure income for the first three years of retirement while keeping your long-term investments working for growth. With insights on risk management, longevity planning, and building financial confidence, this episode will help you safeguard your retirement and enjoy peace of mind for the years ahead. 

To learn more visit www.freeretirementreport.ca

Chapters

• 0:00 Introduction to Retirement IQ
• 0:19 Understanding Investment Volatility
• 1:03 The Positive Side of Volatility
• 1:57 Accumulation vs. Distribution Phases
• 2:51 The Mountain Climbing Analogy
• 3:54 The Conundrum of Retirement Planning
• 5:00 The Impact of Negative Volatility
• 6:06 Introducing the Cash Wedge Strategy
• 7:22 Minimizing Retirement Income Risk
• 8:18 Conclusion and Call to Action
• 8:51 Disclaimer

Transcript

Episode #4: Managing Investment Volatility in Retirement

John Stregger: 00:09 - 08:40
Hey everyone, welcome to Retirement IQ, where I help you better understand all things retirement, so you can build the kind of retirement you've always dreamed of. I'm your host, John Stregger, and today I want to share with you the biggest financial risk to your retirement and what steps you can take to reduce that risk. The big risk I'm talking about is investment volatility. First off, what is volatility? Simply put, when investments jump up or down in value over a short period of time, that's volatility. Volatility can be a true measure of risk, but also a potential reward. In other words, volatility can work both for you and against you. The negative side of volatility. Today, we are going to focus on the negative side of volatility and the impact it can have on your retirement income. But before we drill down on the problem from a retirement perspective, I want to back up a little bit and talk about why volatility can actually be a great thing. When I'm sitting with clients talking about their investment journey, I like to break it down into two separate and distinct phases. If you step back for a moment and think about when most people start saving money, it's usually in their mid-20s. So that means when you spend your final days on earth and your final dollars, your investment journey could have spent 60 or more years. Within that journey are two specific phases you need to be aware of. There's your accumulation years, Those are the years you're saving money for the future. And then there's your distribution years when you're pulling money out of your accounts to live on. So while it's one continuous journey, it can be broken down into two distinct phases, each with very different investment rules. So how are these phases different? I often use this analogy to further explain it. Imagine yourself preparing to climb a mountain, a really big mountain. When I ask people what their goal is in climbing that mountain, they often reply that they want to get to the top. But the real goal should be not only to get to the top, but also make it down safely. Your retirement savings journey is much the same. When you're saving money, you're filling up your retirement backpack full of money and have investment strategies to get you to the top of that mountain. This is where volatility may help. When used properly, negative volatility can be one of your best investment friends. If you're putting money away on a regular basis and stock markets go down and up along the way, you end up buying low when investments are on sale. When markets recover, you have the potential to make gains because you bought low and your backpack just gets heavier as markets rise. It's called dollar cost averaging and you're smart for doing it. These are your up the mountain years or your accumulation years. Now, when you finally get to the top of that mountain and you plant your flag up there, we call that your retirement date. That's the day you say, I'm not going to work anymore. It's also the day you begin the second phase of your journey down the mountain, the distribution phase. Now, ascending and descending a mountain require completely different skill sets to be successful. And the same applies to your retirement planning. So what's the main difference between accumulation and distribution? Quite simply, instead of filling your backpack with cash, you're gonna start emptying it and pulling money out to live on. But here's a conundrum for you. When you planted your flag at the top of the mountain, and now you're peering over the edge at your retirement years, a couple of key questions are gonna pop into your head. Number one, how long am I gonna live? Number two, how is my bag of money gonna perform going forward? So not only do you need to worry about how long your income needs to last, but you also need to worry about how your money is actually gonna perform. Remember how I said negative volatility can be your best friend going up the mountain? Well, now that you're pulling money out of your bag, Negative volatility actually works against you and is now your worst enemy. Here's a simple example of how that can hurt you. Let's say the day you retire, an unexpected political event happens and suddenly the markets go down 30%. So your account statement now says $700,000 instead of 1 million. You still need to live and pay your bills, so you withdraw your $80,000, and now your account is down to $620,000. If you continue pulling $80,000 out of an account worth 620, you're gonna run out of money a lot sooner than you planned. This is the opposite of dollar cost averaging. You are selling at a low, and it can really hurt you. If this were you, what would you do? Would you stay invested and hope things got better? Or would you shift out of the market, get really conservative, and cut back your lifestyle? Or would you even consider going back to work till things improve? Clearly, none of those options are good. But the good news is, this may be avoided if you implement something we call the cash wedge strategy. And we use it and build it into virtually every retirement income portfolio we help our clients with. The cash wedge strategy. Here's how it works. First, we work with you to determine how much income you're gonna need in your first three years of retirement. Once we know that number, we can allocate a portion of your portfolio to really conservative investments, such as high interest savings accounts and GICs. This portion of your portfolio creates a secure wedge from which you begin drawing your retirement income. Now, if you know that you have your income for the next three years guaranteed, you can take a longer view with the rest of your portfolio and invest that in the market without exposing yourself to negative volatility over the next few years. This allows you to stay invested, participate in the market, and pick up bigger gains. Eventually, you can move those long-term profits into your cash wedge position to create income for your future years. minimizing your retirement income risk. The cash wedge strategy is one of the many tools we use to help our clients. It gives you the freedom and permission to spend your money with confidence. It also allows you to stay invested for the longterm with confidence. History shows that investing for the long term gives you the potential to earn more from your portfolio and get the most out of your retirement income. Retirement can last a really long time. For that reason, we believe you should also invest in long-term investments that grow over the long term. While there are many strategies we employ for our clients, the cash wedge strategy is one way for you to participate in those long-term investments without directly exposing yourself to the volatility which comes with those kinds of investments. Want to learn more? We love having conversations with people about all things retirement. If you wanna ask me anything, go to freeretirementreport.ca and you can schedule a call directly on my calendar or shoot me an email and I promise to get back to you. That website address again is freeretirementreport.ca. Until we meet again on our next episode, I'm John Stregger and thank you for listening to Retirement IQ.

Narrator: 08:51 - 09:08
The information provided in this podcast is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax, or other professional advisors.