Adam Chapman of Yes Money, pictured in his office in London, Ont., on March 5, said it’s important that advisers design retirement plans to withstand market swings; otherwise, downturns can cause panic and reactionary decisions.Nicole Osborne/The Globe and Mail
Watching your portfolio drop in value is never easy, especially if you are in or near retirement. But financial experts say the current market slump is more than just a moment of anxiety – it’s an opportunity to stress test your retirement plan.
If your retirement plan can’t withstand this kind of volatility, it may be time to question whether it was built for the long term in the first place, experts say.
After U.S. President Donald Trump launched his global trade war last week, North America’s major indexes took a hit, wiping out trillions of dollars in value.
While the drop is painful, market downturns like this aren’t uncommon. In fact, they’re one of the “biggest inevitabilities of retirement,” said Adam Chapman, a certified financial planner based in London, Ont.
That’s why it’s important that advisers design retirement plans to withstand market swings, Mr. Chapman said. Otherwise, downturns can cause panic and reactionary decisions, he said.
“If your financial advisor is urging you to delay retirement or cut spending due to market volatility, you don’t have a plan,” he posted on LinkedIn last week.
“You know your plan has failed when you allow the market to dictate your next move,” Mr. Chapman said in an interview. “A plan helps you control your actions before the inevitable occurs. Otherwise, you’re not in control, the markets are.”
He said many advisers are accustomed to managing clients who are still working, not retirees drawing income from their portfolios.
As a result, he often sees advisers responding to volatility by telling their clients to delay retirement or reduce spending. But in some cases, that can do real harm, both emotionally and financially.
“You are stealing their best years from them because you didn’t have a plan ready for them to manage this,” Mr. Chapman said. “The big issue with all of these reactionary pieces of advice is it’s the illusion of taking action, but it’s already been done too late.”
Colin White, a certified financial planner and CEO of Verecan Capital Management, said it’s impossible to plan for every outcome, but downturns such as this one are an opportunity to reassess your retirement strategy – and your adviser.
If you’re wondering whether your adviser’s plan is built to last, experts suggest asking yourself a few key questions.
First, have they done a detailed cash flow analysis with you? That means understanding not just how much you spend each year but separating your needs from your wants. If they know that, they can ensure your basic needs are covered, even when markets dip, Mr. Chapman said.
“If the adviser does not know that, then they have no way of building retirement income to make sure that your needs are covered in the way that it should be, and that’s what makes people panic,” he said.
Another important question is whether your adviser is aware of your expected spending over the next few years and planning around that.
“If your adviser’s not asking that, they’re not actually preparing your income for market volatility,” Mr. Chapman said.
Mr. White added that the current market downturn is a good time to ask your adviser how your plan is being affected by market conditions – and to “listen carefully to the answer.”
If the answer is vague or generic – just about the markets in general, not about your goals or income – “then you’re getting bad advice,” he said.
This could also be a good moment to get a second opinion, Mr. Chapman said. He suggests seeking out a fee-only or advice-only planner to review your retirement plan. These advisers don’t earn commissions on products, so their analysis may be more objective.
“If market swings have you rethinking your retirement, the thing that might need changing isn’t your plan – it’s your advisor,” Mr. Chapman wrote in his LinkedIn post.
