The Importance of Staying Flexible

One of the biggest worries when making the leap into retirement is giving up the security that comes with a paycheck – especially during periods of elevated inflation and economic uncertainty, which make it difficult to make decisions about your future with confidence. The more you can build flexibility and options into your retirement plans, the better you’ll be able to roll with the economic punches.

Here are four steps you can take to increase your financial flexibility in retirement.

Build Up Your Cash Reserves

The longer you can stay invested in the market, the longer your retirement funds can last. By increasing your allotment to cash accounts – such as an emergency fund – you might be able to give yourself more flexibility in managing your expenses and delay having to sell off investments from your retirement accounts. If you’re already in retirement, you might benefit from pulling out of cash accounts during volatile market periods and withdrawing from investments during more stable times.

Re-Examine Your Budget

While it is always prudent to revisit your budget regularly, that’s especially true when planning for retirement, a time when you likely won’t have the consistent income you did when working. Taking an all-in look at your spending also allows you to see where inflation has impacted your day-to-day expenses – and even shows you opportunities where you may be able to free up cash. Tools like Baird Online’s 360 Wealth can help you manage your budget and monitor your cash flow, while giving your advisor insights into how your day-to-day spending may require adjustments to your portfolio.

Review Your Investment Mix

As you’re nearing or entering retirement, consider what kinds of assets you have and how easy they would be to liquidate if you needed to. For example, private equity investments are known to be highly illiquid – those investments are designed to be inaccessible for years (often 10 years or more), and investors looking to exit those investments early could face substantial fees. Real estate investments can also take time to liquidate, particularly if doing so requires selling the property, finding a buyer and working with a lending institution. Maintaining some portion of your retirement assets that are easier to access and (if need be) exit gives you more options if you need them.

Consider a Line of Credit

The most common tool for increasing financial flexibility is something retirees need to be especially careful with. Credit cards let you make purchases (and build rewards points) without immediately tapping into your cash reserves, but with credit card interest rates currently topping 20%, they can quickly eat into your savings if you don’t pay them off in full every month. But there are other avenues to build flexibility that don’t come with as high of an interest rate, including a home equity line of credit and a securities-based line of credit.

• A home equity line of credit lets you borrow money against the equity you already have in your home. It’s convenient (and can even help protect against title fraud), but it lessens how much you’d receive were you to sell the home and can be harder to secure if you’re already retired with a reduced income.
• A securities-based line of credit uses securities in your Baird taxable accounts as collateral, providing you with quick access to credit without any income requirements or the need to immediately sell investments. Your Baird Financial Advisor can offer perspective as to whether this strategy is right for you.

A little financial flexibility can help extend the life of your retirement portfolio. Your Baird Financial Advisor can sit with you to evaluate your retirement plans and uncover ways to build in additional resiliency.

For more information about the Enhanced Credit Access program, including benefits, potential risks, and Baird’s conflicts of interest, please review the Important Information about Securities-Based Lending and Baird Enhanced Credit Access document available on bairdwealth.com/retailinvestor. It can be found by clicking the Securities-Based Lending Program link under the Additional Services section on the Retail Investor Information webpage.

The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.