The Brexit and Near-Retirees: What it Means

One of the fears for those within a few years of retirement is that the stock market will tank right as they are ready to retire. An event like the Brexit vote in the United Kingdom, and the ensuing declines we’ve seen in world and U.S. financial markets can strike fear in the hearts of these clients.

As their financial advisor hopefully you have positioned their portfolios taking into account that a market downturn is inevitable and would occur at some point.

Your clients nearing retirement are looking to you for guidance, what should you say to them? (For more, see: Talking to Your Clients about the Brexit.)

Assuming that you have positioned them to be able to withstand the occasional market corrections that invariable occur, tell them this.

Go over the fact that while their allocation to equities may take a short-term hit from the aftermath of the Brexit vote, other parts of their retirement portfolio are there to balance this off and mitigate the impact on their overall nest egg. (For more, see: Who Will Be Next to Leave the E.U.?)

For those clients for whom it is applicable, point out to them that they will be receiving payments from Social Security and perhaps a pension that are not impacted by the stock market. Brexit, nor other similar future events that may cause market disruptions, will impact these payments. (For more, see: Brexit Blues: What Should I Do with My Retirement Portfolio?)

Remind clients that the income from these types of sources serves as an “income floor” that allows them to take some risks in areas like stocks in order to keep ahead of inflation. Also remind clients who may be panicking that inflation is a far bigger threat to their retirement than market drops in the wake of events like Brexit.

One thing to remind clients nearing retirement about is that fact that their portfolio is designed for their life expectancy and the act of retiring is simply a milestone on this journey. While you might suggest some changes in their portfolio once they do actually retire, events like Brexit are not a reason for major changes to their investment strategy as they approach retirement.

Along these lines counsel your clients that withdrawals from their nest egg will take place over many years, perhaps 20 or 30. They are not going to be withdrawing their entire 401(k) balance the day they retire and over time historically they will recover from these short-term losses and then some.

The stock markets will have many more gyrations like this. Take the time to show and/or remind your clients nearing retirement that you have factored market events like this into their investment strategy. Discuss that the asset allocation you’ve recommended includes safer investments and even cash reserves to buffer them against market declines. (See also: Markets in Disarray After Brexit Vote.)

If you do have some clients nearing retirement who want to go to cash or make drastic changes to their 401(k) or IRA accounts it is important to talk them through why these moves can put a major crimp in their long-term retirement strategy. Tell them what might feel good today could really hurt their long-term retirement planning efforts.

Clients nearing retirement are understandably nervous when some event like Brexit rocks the stock market and they see the value of their nest egg drop. It’s times like these where your calm and wise advice can really pay off for these clients. (For more, see: Analysts Predict Panic and Volatility After Brexit.)