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Retirement Planning

Can A Tough Economy Threaten Your Retirement Investments?

Zoe Team and Steven Morton, CPA, CFP®, CRPC (Zoe Network Advisor)

Aug 5, 2022

4 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

Economic downturns are temporary; historical data shows that markets have always eventually recovered.
Focusing on personal financial goals rather than market performance prevents unnecessary anxiety and rash decisions.
Regular, disciplined investing during tough economies can yield better long-term results by purchasing assets at lower prices.

Frequently Asked Questions

Can a weak economy permanently damage my retirement savings?

While market drops are painful, they are historically temporary. A well-diversified plan and continued contributions can help your portfolio recover and grow over time.

Should I stop contributing to my retirement during a recession?

Stopping contributions is usually counterproductive. Continuing to invest allows you to buy more shares when prices are low, which can boost long-term accumulation.

How can I reduce retirement investment anxiety?

Focus on your long-term retirement timeline rather than daily market fluctuations. Having a clear plan ensures your investments are aligned with your future needs.

Properly aligning retirement investments for long-term success boils down to having a solid financial plan that considers all your resources. Accurately reflecting on all your goals and objectives is critical.

The biggest challenge that investors face when managing their money for retirement is aligning their portfolios for long-term success. Properly aligning retirement investments for long-term success boils down to having a solid financial plan that considers all your resources. Accurately reflecting on all your goals and objectives is critical. Dialing in spending patterns, including routine and extra expenses, is necessary for proper financial management.

In retirement, you have two objectives for your money, which are polar opposites. On one hand, you need a source of reliable cash flow. On the other hand, you should have a long-term basis for your portfolio to grow and offset the impacts of inflation. Many financial advisors recommend you split your money into two separate portfolios. This separation will allow retirement investments to align with the two objectives mentioned.

The Bucket Strategy

The Cash-Flow Bucket

We target multiple years’ worth of cash requirements for the cash flow piece. This portfolio allows for safe, reliable cash flow that is conservatively invested and therefore does not fluctuate with the stock market. Normally, this is where living expenses are addressed.

To determine the proper amount in this cash flow bucket, you need to consider various sources of income. Even though almost everyone has access to Social Security benefits, you need a strategy to maximize this resource.

Questions you might ask are:

Since benefits increase until 70 years of age, will you wait until you are 70 to claim Social Security benefits?

If you are married, how are you planning to maximize the spousal benefit?

Work with your financial advisor to determine the optimal time to file for your benefit. Retirement and claiming benefits is not a “one size fits all” issue. The proper claiming strategy includes multiple considerations such as the age difference between spouses, the benefits each has earned, the availability of other assets to provide cash flow, and considering income taxes, to name a few.

Long-Term Growth Bucket

The other portfolio is managed for long-term growth to combat the effects of inflation and avoid them from getting in the way of the return on your retirement investments.

As the rate of return target is achieved, you should move another year’s worth of desired cash flow from the growth bucket into the cash flow bucket.

In the case that the portfolio takes a year to earn a year’s worth of return, the cash flow bucket maintains its multiple-year target. If we go through a period of declining markets, we patiently wait until the growth is achieved.

Relationship Between the Two Portfolios on the Market

Due to the overall asset allocation between the two portfolios, when the stock market goes through its periodic declines, you end up with a greater overall percentage in equities. This is the type of distribution you want. The cheaper the stock market is, the more of it you want to own. Using up some of the cash flow buckets decreases the overall percentage of fixed income. Then as the market rebounds, you can build back the cash flow portfolio through your long-term growth bucket. The bucket approach is a highly disciplined approach to portfolio management, where the two buckets work hand in hand and complement each other.

Retirement Investments at a Glance

By separating these objectives into two separate portfolios, we can add the element of time to achieve growth. This prevents liquidating growth investments when the market is down to produce cash flow. It also adds peace of mind for our retiree clients, knowing that we have multiple years’ worth of their cash needs met without disrupting the longer-term assets.

Closing Thoughts

Without a disciplined approach, retirees are tempted to do things that are detrimental to successful portfolio management, like market timing or not having enough growth potential in their portfolios. A cash-flow portfolio where you set aside cash needs in a stable environment buys you a holding period to unlock 5 years of retirement cash flow.

The Bucket Strategy

The Cash-Flow Bucket

Questions you might ask are:

Since benefits increase until 70 years of age, will you wait until you are 70 to claim Social Security benefits?

If you are married, how are you planning to maximize the spousal benefit?

Long-Term Growth Bucket

The other portfolio is managed for long-term growth to combat the effects of inflation and avoid them from getting in the way of the return on your retirement investments.

As the rate of return target is achieved, you should move another year’s worth of desired cash flow from the growth bucket into the cash flow bucket.

Relationship Between the Two Portfolios on the Market

Retirement Investments at a Glance

Closing Thoughts

Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.

Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.

The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.

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