For those who are nearing retirement, the recent volatility of the market has been especially unsettling. The Dow Jones Industrial Average has plunged almost 30% over the last few weeks causing those with 401ks to worry about their retirement savings. The consequence of not having enough money in retirement can be tragic. A tight budget or unexpected medical bills can have a huge impact on quality of life in one’s sunset years. Fortunately, retirement funds are not just a one time payment and there are still ways to restructure your finances to ensure your long-term comfort.
Based on how far out from retirement you are, here are some things to think about as you navigate the current recession.
If You’ll Be Retiring in A Year
Your situation is the most time-sensitive, but also might not be as dire as it seems. The market has turned down, but as long as your portfolio is diversified it probably hasn’t gone down as much as the overall market has. Savings in stocks have been hit, but savings in bonds should still be solid.
Have Some Cash On Hand
To serious investors, it is counterintuitive to sell off investments right now, given the economic downturn. It is far more damaging to your retirement planning if you’re forced to sell long-term investments, so it’s great to have enough money set aside to ride out any short-term economic turbulence for at least a year. The average bear market or stagnant market, lasts 20 months.
If you don’t have cash to spare, now is the time to sell off enough some bonds to raise that emergency fund. If you still need to dip into stock investments, just be sure to choose a day where the market is up. Even over the last few weeks there have been a handful of days when the markets surged. Discipline and close attention to the markets will allow you to minimize losses in this volatile time.
If neither of those are options, you could also opt to stop contributing to your 401k for this next year and use that extra cash for more pressing bills and expenses.
Rebalance Your Portfolio
Check to see if your asset ratios are what you planned them to be—if your original plan was a 60% stocks, 40% bonds allocation and your stocks have dropped considerably, you might need to sell some bonds and pick up some stocks at a lower price to achieve that original ratio. The market is down, so it’s a good time to buy.
If this economic decline has revealed that you are too risk averse to have so much in the stock market, that is also a valuable lesson. Buying stock has a higher possible return on investment, but if this past month has proven to be too emotionally taxing, there’s nothing wrong with putting more emphasis on bonds in your portfolio.
Reevaluate Short-Term Plans
Waiting one extra year to retire—or holding off on that kitchen renovation—might be pragmatic. If you are 62 and have planned on using your newly accessible Social Security money, it could be very helpful for your future self to take a reduced benefit for this first couple of years.
If You’ll Be Retiring In a Few Years
Don’t Sell, Ride it Out
You only lose money on an investment if you sell when it’s down. If you have enough cash to ride out this storm, avoid selling right now. Especially if you have any stocks that mirror the market as a whole, they will be back up in 20 to 24 months. Depending on the size of your investment, it could be the difference of 5 extra years of financial security down the line.
If You Sold During the Fall, Get Back Into It
The market is down and it’s a great time to buy. The best way to stay disciplined in your investing, and to avoid some anxiety, is to make an investment schedule and stick to it. Investing small sums of money at a time is less risky and feels much more comfortable.
Make Sure Portfolios Are Rebalanced
This tip goes for basically all long-term investors. Senior financial adviser Bruce Weininger says, “One of the unappreciated beauties of rebalancing is it takes away the most wealth-destroying question out there: ‘Is now a good time to invest?… It forces you to buy low and sell high, which is the opposite of what most investors do.”
If You’ll Be Retiring In 10 Years
You are in the best spot of all the “pre-tirees.” This economic fall surely causes concern, but it shouldn’t cause panic. You can make up the losses by buying stocks now, while prices are low. In a year or two, when the market is recovered, you’re likely to be in a better spot than before.
The main takeaway for this group is to not let the recent bad news turn you off from investing altogether. Investment is vital for a long and happy retirement.