With record numbers of baby boomers reaching retirement age, an important question on many people’s minds is how the bear market may negatively affect their plans.
Retiring during a falling market can put you at a significant disadvantage financially. Furthermore, dipping into retirement funds within the first five years of retirement can put you at a higher risk of outliving your savings.
One option, of course, is to simply not retire. Unfortunately, putting off the age at which you retire may not be an option everyone has, or wants. Let’s look at additional planning strategies that can help hedge your financial bets in a down market.
Don’t Panic. It is rare for stock markets to lose money over 5-year periods. Keep this long-term perspective in mind when the newscasts are reporting the turmoil in the markets. Additionally, having a balanced, well-diversified portfolio can help minimize market losses and help you keep your peace of mind.
Cut your withdrawals. If you’re currently taking 4 percent a year from your retirement account, try reducing, at least temporarily, your withdrawals. Careful budgeting may allow you tighten your belt.
Boost your income. You may want to consider taking on a part-time job: there is an abundance of positions that employers would love to fill with mature candidates. Or do an occasional freelance assignment and lend your years of experience to a useful enterprise.
Don’t take the inflation adjustment on your income until you absolutely have to. Try to get by next year on the same dollar amount you withdrew this year. If you can keep this up for two, three or even four years, it could help keep your retirement portfolio on track while markets rebound.
Do not sell all your stocks and reallocate money to “safer” investments. That was the retirement plan embraced by the previous generation. Growth is an important component of your portfolio, and history shows that equity investments are necessary for most retirees to keep pace with the rising costs of living.
Rebalance your portfolio by taking more money out of your investments that have done well and less out of any investments that may have fallen. Evaluate the “losers” – you may want to actually invest in more shares if long-term prospects remain positive. Do this while keeping your intended portfolio mix.
Make little changes, not big ones. If you find you need to make adjustments to any part of your plan, do so in small increments; do not make any dramatic alterations. The market historically rewards those who stick with their investment plans and avoid drastic actions.
Keep your retirement on track. Planning and execution are absolute musts for a sustainable retirement. Meeting with your financial planner on a regular basis can help you monitor your portfolio and be aware of any adjustments you might need to make during a bear market.