Morningstar - Q2 2020 - 8

Dispatches

You Got This
How investors can make
the best of the variables
they control.

Phillips Curve
	

12

The Wisdom of Sages

	

15

The New American Retirement Plan

	

17

Reforming the U.S. Retirement System

	

21

	

29

Americas
Greater Europe
Australia & New Zealand
Asia

Global Briefs

31
33

There have been so many examples of people
ingeniously working to make the best of
a bad situation: the singalongs that broke out on
Chicago streets, the young people delivering
groceries to older adults who shouldn't go out,
and the community groups gathering and
crafting masks and other needed safety equipment
for at-risk medical personnel.
My husband and I witnessed our own version
of that "we've got this" spirit one Friday. It was my
sister's birthday; she has an intellectual disability
and lives with us for part of each year. Under
normal circumstances, her birthday is a big to-do
for our whole family, and this year we had
plans for a trip to the salon, lunch and dinner out,
and an overnight in a hotel with the extended
family the next day. But things being what
they are, we had to put all of that on hold this year.
In one of our ongoing text chains, I confided
to a few neighbor friends that I was worried about
how our little household could craft a satisfactory
celebration while in quarantine.
The morning of my sister's birthday, I got a
message from one of them. "We're coming over,"
it said. "And we promise to stay safe." As my
husband, sister, and I gathered in the doorway of
our house, our eyes absorbed a beautiful sight.
About 20 people, adults and children, dogs in tow,
were arrayed across the street and sidewalk, with
families all keeping a safe distance from one
another. "A-one, two, three, happy birthday to
you...." They sang in unison and shouted birthday
greetings to my sister, displayed hand-lettered
signs, and lingered in the street, sharing well

8

Morningstar Q2 2020

They've got this, I thought. We've got this. Despite
the quarantine, despite the scary headlines
about the virus and job loss, despite the canceled
plans, this birthday is going to be just fine. It's
going to be different from what we had planned,
but that's OK.

L E T T E R F R O M T H E B OA R D

Christine Benz

Ivory Towers

Policy

wishes with one another from the recommended
safe distance. My sister was tickled, my
husband was steadily recording from his phone,
and I was a puddle.

Lately, I've been thinking about that can-do
attitude in the context of my work, especially with
respect to retirement planning. How can
investors nearing retirement or in retirement
take an indisputably bad situation-the
coronavirus crisis and the related economic and
market challenges-and make the best of it given
the variables that they actually control?
As with any situation like this, it boils down
to surveying what tools we have to work with,
picking which are viable, and formulating
a strategy. Even as the crisis has sent portfolio
balances plummeting, investors can still
make their retirement plan work, especially if
they're creative and willing to be flexible.
Assess Spending Adjustments
As the market has been falling, many retirees
and preretirees find themselves pondering
a frightening question: Am I at risk of running out
later on? The best way to protect against
that possibility is to tether withdrawals to portfolio
balance. That means withdraw less when the
market is down to leave more of the portfolio in
place to recover when the market eventually does.
On the flip side, it means being able to spend
a bit more when the market is up.

Of course, the most radical way to tie in
withdrawals with a portfolio's value is to simply
withdraw a fixed percentage of assets-
say, 4%, year after year. On the other hand,
fixed-percentage withdrawals can leave retirees
with an unpleasant lumpiness in their cash flows.
A 4% withdrawal of a $1 million portfolio
would be $40,000; a 30% stock market drop later,
a 4% withdrawal from the depressed $700,000
portfolio would be just $28,000.
Morningstar - Q2 2020

Table of Contents for the Digital Edition of Morningstar - Q2 2020
