Entering retirement marks a major shift from being active in the workforce to relying on your investments to keep you afloat. In times of such extreme market volatility, you might be thinking now is not the right time to go through with such a monumental change.
But experts say you shouldn't let a down market deter you from entering retirement according to your personal goals and plans. Plus, there are a few extra steps you can take to help lessen risk and retire more confidently.
While it may feel easier said than done, "a volatile market shouldn't dictate whether or not you retire," says Mindy Yu, director of investing at Betterment at Work. "Market volatility is not new, and if history is any guide, the market will eventually recover. Often the timing of upward movements can be equally surprising as the market drops. There will always be good years and bad years in the market."
When on the cusp of retirement, though, make sure your investments are positioned to preserve their balance by holding less risky assets, says Yu. (Riskier assets carry bigger potential for you to lose even more money over a short amount of time.)
If you don't know how to adjust your portfolio for lower risk, consider working with a financial advisor for additional assistance. Alternatively, for a more hands-off approach, robo-advisors such as Betterment or Wealthfront provide apps that will automatically rebalance your portfolio for you as time goes on and your risk tolerance changes.
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Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.
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Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts
Fees
Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance
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Investment vehicles
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Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks
Educational resources
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Terms apply.
Despite planning, there's always a chance that once you retire huge dips and peaks in the market could have a major impact on your retirement nest egg.
"Since you're retired, you have to continue making withdrawals in order to maintain your income," Yu says. "During periods of market dips or volatility, your investment assets may have less value, so you have to sell more of them to equal the same amount of money. When the market goes back up, you'll have fewer assets benefitting from the rebound."
To avoid having to pull as much money from your investments during down markets, Yu suggests taking advantage of supplemental income sources such as Social Security, rental income or a pension withdrawal. And if you have been contributing to a high-yield savings account, which typically wouldn't be as volatile as the stock market, consider using some of those funds to allow your investments to benefit from a rebound.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
Since retirement can last 20 to 25 years, it's necessary to invest in stocks or stock funds. Unlike bonds that have a fixed payout, stocks can grow in value. That means dealing with the notorious volatility of stocks, potentially putting your income at risk.
Will I lose my retirement if the stock market crashes? ›
Your investment is put into various asset options, including stocks. The value of those stocks is directly tied to the stock market's performance. This means that when the stock market is up, so is your investment, and vice versa. The odds are the value of your retirement savings may decline if the market crashes.
Should retirees get out of the stock market now? ›
Yes, and Here's How. You might have switched to the spending phase of your retirement plan, but that doesn't mean you shouldn't invest any longer, or plan for market volatility. Investing is a smart financial move to make regardless of what stage you're at in life.
Should I take my retirement money out of the stock market? ›
Keep Some Cash on Hand
That's the potential danger of withdrawing money early in retirement during market downturns and, thus, permanently diminishing the longevity of a retirement portfolio. By selling low, the longevity of the investor's portfolio is jeopardized.
At what age should you get out of the stock market? ›
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
Do I lose all my money if the stock market crashes? ›
No, a stock market crash only indicates a fall in prices where a majority of investors face losses but do not completely lose all the money. The money is lost only when the positions are sold during or after the crash.
Where is the safest place to put your money during a recession? ›
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.
How much should a 70 year old have in the stock market? ›
If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.
Should a 75 year old be in the stock market? ›
But now that Americans are living longer, that formula has changed to 110 or 120 minus your age — meaning that if you're 75, you should have 35% to 45% of your portfolio in stocks. Using this formula, if your portfolio totals $100,000, then you should have no less than $35,000 in stocks and no more than $45,000.
How do you retire when the market is down? ›
Consider the following steps to minimize the impact of a down market on your retirement portfolio:
- Step 1: Know how much you can spend.
- Step 2: Look for ways to reduce your spending.
- Step 3: Look for other cash solutions.
- Step 4: If you must tap your savings, be strategic.
- The bottom line.
Earnings Rebound
Analysts are projecting S&P 500 earnings growth will accelerate to 9.7% in the second quarter and S&P 500 companies will report an impressive 10.8% earnings growth for the full calendar year in 2024.
Where is the safest place to put your retirement money? ›
Plenty of safe places exist to put your money as a retiree. If you don't mind keeping it locked up for a specific time period, Treasuries and CDs are great ways to get a competitive return. Bond ETFs work well if you want to invest in a variety of bonds.
How to protect your 401k from a stock market crash? ›
How to help protect your 401(k) from a stock market downturn
- Diversification and asset allocation. ...
- Rebalance your portfolio. ...
- Keep contributing to your 401(k) ...
- Stay calm and disciplined.
For years, a commonly cited rule of thumb has helped simplify asset allocation. According to this principle, individuals should hold a percentage of stocks equal to 100 minus their age. So, for a typical 60-year-old, 40% of the portfolio should be equities.
What is a good portfolio for a 70 year old? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
What is a good asset allocation for a 65 year old? ›
For most retirees, investment advisors recommend low-risk asset allocations around the following proportions: Age 65 – 70: 40% – 50% of your portfolio. Age 70 – 75: 50% – 60% of your portfolio. Age 75+: 60% – 70% of your portfolio, with an emphasis on cash-like products like certificates of deposit.
What happens to my pension if the stock market crashes? ›
If the market falls, your pension assets may decrease, potentially reducing the amount of money you have available for retirement. Market volatility can also have an effect on the value of your investments, resulting in fluctuations in the value of your pension assets.
How do I protect my 401k if the stock market crashes? ›
Diversify your portfolio
Diversification is a key aspect of an investment portfolio, especially for long-term accounts like 401(k)s. Diversifying your portfolio across different asset classes and markets also helps to reduce exposure to one particular segment of the market.
What will happen to social security if the economy collapses? ›
If trust fund assets are exhausted without reform, benefits will necessarily be lowered with no effect on budget deficits. The author is the Chief Actuary of the Social Security Administration.
What happens to your 401k if there is a recession? ›
Continue your regular contributions
By continuing to make regular contributions, you'll benefit when prices fall, which allows you to buy more shares for the same amount of money. Your account value will benefit when the economy improves and prices rise.
