4 critical steps to retirement planning: J.P. Morgan Asset Management

Yvette Killian

Making sure you have enough money to retire requires making a plan now. J.P. Morgan Asset Management just released its latest annual guide to retirement and recently analyzed the spending patterns of 5 million households to better understand retirement behaviors.

Here are four key takeaways.

Don’t be spooked by volatility

Seeing your retirement savings shrink with market swings can be a scary proposition, but pulling money out of the stock market can be worse in the long run. Don’t let market volatility derail long-term retirement goals.

According to J.P. Morgan Asset Management, while markets suffered double-digit declines in 22 of the past 39 years, 75% of the time those years still ended with positive returns for investors.

People get spooked when they see their portfolios drop and those already living off their retirement savings are even more jittery than young people, Anne Lester, head of retirement solutions at J.P. Morgan Asset Management, told Yahoo Finance’s On The Move.

”When you're still working, there are so many other things you're focusing on” said Lester, adding, “when you get older, I think it's a lot easier to really worry about what if the market goes down? I better sell and be safe. But what that leads to is selling low, which is the opposite of what we want people to do.”

Avoid risk as you grow older

Lester said risky investing should decline with age.

People need to remember that as they enter retirement they won’t be drawing paychecks to fund expenses, therefore generating assets earlier in life is critical. Asset allocation should be diversified and balanced and lifestyle expectations in retirement must be considered.

”It's time when you're in your 40s and 50s to really check in and see what you're on track for. And if you're not quite on track for what you'd like to have, there may be a conversation to have with yourself about course correcting a little bit,” said Lester.

Closeup of hands holding retire plan matching jigsaw pieces against wood
Closeup of hands holding retire plan matching jigsaw pieces against wood

Adjust spending habits

The quickest way to boost savings is to stop spending but that is not only difficult for many people but also unsustainable, said Lester. The good news is the bank found that spending declines once people reach their mid-50s — regardless of wealth level.

”Your kids, presumably if you've had them are starting to leave the family payroll. You are, you know, probably have consumed a fair amount. You've finished remodeling your house, right? There's stuff that you spend money on in your 40s and 50s that you're done with. So that might be a little bit of silver lining there,“ Lester said.

And for some people, working longer can be an option, particularly if they’re not in good financial shape to withdraw from the workforce, according to Lester. But deciding to continue to work requires some honest number crunching. “In your 60s, I think it's really about, you know, here's what you got. How are you going to make peace with it?”

Be flexible

Lester said being nimble is essential.

The survey showed that people don’t reduce spending overnight when they retire, in fact, people often use more money earlier than expected as they gear up for a new stage of life. It also showed spending volatility can remain prevalent early in and throughout retirement.

”I'm a big believer in course correcting,” said Lester, adding that every five years is a good time period to do re-evaluate your finances. “You've got to be able to flex a little bit. And I think you should be periodically checking in and recalibrating... People's values change. People's economic circumstances change.“

Yvette Killian is a producer for Yahoo Finance’s On The Move.

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