This strategy, studied by Mr. Pfau and Michael Kitces, director of wealth management at Pinnacle Advisory, is to increase your stock holdings over time. Portfolios that started with about 20 to 40 percent in stocks at retirement, and then gradually increased to about 50 or 60 percent, lasted longer than those with static mixes or those that shed stocks, according to their analysis.
Another option is to buy a guaranteed paycheck with a portion of your savings. With an immediate annuity, you pay a lump sum to an insurer in exchange for a guaranteed stream of income for life. A common approach is to consider how much of your must-have basic expenses — like food, shelter, property taxes — are covered by Social Security and any additional income, such as a pension. Then, buy enough annuity income to cover the gap. It also simplifies your financial life, which becomes increasingly important as you age.
But be careful with annuities: There are many types, and they can be complex — and not necessarily sold to you by someone who is legally required to put your financial interests ahead of his or her own.
Hold a Cash Reserve. If you’re approaching retirement and worried about a significant market correction, there’s another strategy that might provide some peace of mind: Keep up to two years of basic living expenses in cash to cover, say, the costs of housing, food and other essentials. With that sort of buffer, you can try to avoid tapping your investment portfolio for a while, giving it some time to recover.
Putting too much money in cash, however, may weaken overall returns because you will have less invested to begin with, and therefore less to build on.
Look for Higher Returns. This does not involve chasing after some hot stock or growing sector. It’s far more boring and counterintuitive, but guaranteed to deliver a higher paycheck in retirement over the long run: delay Social Security as long as you reasonably can.
“The effective return of delaying Social Security is much higher than what you will earn in the market today,” said David Blanchett, head of retirement research for Morningstar. “It is like a 10 percent guaranteed return.”