Football season is over ... retirement lessons still important

Those of you who are familiar with American football might know what “red zone ” means. For those who have never heard the term, it’s defined as when the team on offense enters the opponent’s 20-yard line or closer to the end zone. In short, it’s when a team gets into scoring range.

The red zone is a critical time for a football team on offense or defense as the outcomes of those plays have an outsized impact on the game, and possibly even the season.

If you are nearing retirement or recently retired, you are in the equivalent of the football “red zone.” The decisions you make and the possible investment results that can occur in this period may have a wildly outsized impact on your probabilities of retirement success and not running out of resources.

Generally speaking, when referencing the retirement red zone, we are talking about the five years leading up to retirement and the initial five years after retiring. We’ve written about sequence of return risk before, and how markets that are beyond your control can completely derail your retirement simply due to unfortunate timing.

However, you do have control of your portfolio construction and your distribution strategy when dealing with the retirement red zone. When withdrawing funds in retirement, a strategy is required to determine where you will pull funds from and when. You may have also seen our article on focusing on risk capacity compared with simple risk-tolerance exercises. Implementing a spending strategy that navigates any kind of market environment can be very low-hanging fruit to help navigate these critical early retirement years.

Much like a head coach will narrow the list of plays when in the red zone for the specialized field location, a retiree should focus in on several major decisions when nearing the decision to retire. Paying down debt or continuing to accumulate assets is a frequent decision we see not given enough attention. This should support your personal circumstances, cash flows and what most greatly improves your probabilities of success.

The last few years of retirement savings may not move the needle as much as paying down debt when it comes to improving your retirement cash flows. Positioning your investments so there are enough safe assets in the years leading up to your retirement is also critical. We often see people waiting until the last minute prior to retiring to address implementing their retirement income investment strategy, and if the market is in a drawdown, the ball may have already been fumbled.

There’s an old saying when a player scores in the end zone: “Act like you’ve been there before.” Sometimes players score and almost seem surprised it worked, but that shouldn’t apply to your retirement. With adequate preparation, practice and the right set of plays, you can be confident of navigating the retirement red zone and avoiding its many risks.