Understand Withdrawal Needs
There is nothing at all wrong about withdrawing money from your investments, either because you are retired, or going through a career change! If you are in this situation, it is important to understand any withdrawals you may need in the future to meet your lifestyle expense needs.
Any money you may need for those living costs over 1 to 2 years should be in cash or investments with almost no volatility. This will allow you to keep the remaining portion of your investments (those savings not needed for short-term needs) invested based on your medium and long-term investment goals.
If you have already left the workforce or are planning to do so very soon, this approach is also very useful. In addition, I recommend that retirees prepare a long-term cash flow and portfolio withdrawal projection. This will help you understand your potential annual withdrawal percentage, a key indicator of financial success during retirement.
This projection may serve to help you understand whether your withdrawal needs may be sustainable over the long-term. Research has shown that continued annual withdrawal rates exceeding 4% may lead to an accelerated depletion of your savings and likely compromise your retirement.
Understand Your Savings Goals and/or Reduce Your Spending
If you are preparing to stop working in two or three years, you can consider reducing your lifestyle expenses to increase your savings rate. Of course, you may not be able to make such changes, especially in the face of an inflationary environment, in which case this approach may be unfeasible.
On the other hand, increasing your savings, if possible, could further bolster your financial position to support your eventual retirement needs, which will increase the chances of successfully moving toward your long-term financial goals. Reducing your expenses could also be applicable to current retirees, not just those in between jobs.
Consider Your Risk Tolerance and Investment Goals
Your feelings about investment risk are important. As some of us move into a new life chapter, our feelings about investing and risk might change. For example, many people may have primarily invested in equities over most of their lives. They may no longer have the same comfort level in primarily relying on stock investing as they move toward different life circumstances. They may want an investment strategy that seek to provide income or investment returns that have the potential to perform differently and with less volatility than stocks.
Change Your Investment Allocation
New life circumstances may call for a different approach to your investment strategy, especially in a changing economic landscape. If you are concerned about economic or investment risks as you move into a new life stage, there are two approaches you could take.