How to Recover from a Market Crash if You're Retired
Between Feb 20 and March 23 of this year, the markets experienced a 30 percent drop. While they have recovered somewhat since then, the volatility may not be over. These ups and downs are currently leaving investors nervous as they watch their retirement accounts, such as 401(k)s and IRAs, decrease in value from a few months ago.
While this is plaguing future retirees, the stock market drop is also affecting those who have already retired. If you are a current retiree, there is a likelihood you are feeling even more concerned about recent market volatility than others. The question that pops into your mind over and over is: what do you do next? Below, we are discussing a few practices you can set in place to help you recover from this recent market crash.
#1: Review Your Financial Plan
Money and emotions go hand-in-hand. Very few of us can separate our emotions from our finances. That’s why working with an advisor who can offer an objective, logical approach to money management is often a necessary component in reaching our financial goals.
Waking up to see another drop in the market can cause panic––and understandably so. Don't let this shock cause you to take action in the panic. Pause, take a breath, and review the financial plan you and your advisor already have set in place. Remember, this is why you hired someone to help you plan your financial decisions.
Often times, advisors develop financial plans or investment strategies that prepare for the unexpected - whether it’s a market downturn, death in the family, loss of a job, etc. Turning to your advisor and reviewing your plan amidst a market crash can be a comforting first step in remembering not all is lost. Let this serve as a reminder that while the market seems volatile now is not the time to make volatile decisions. Now is the time to focus on what you can control, your personal economy and how you can reallocate to cover your needs throughout retirement.
#2: Decide Whether or Not to Continue Investing
You’ll likely want to talk with your advisor about whether or not continuing to invest in the market is in your retirement’s best interest. Oftentimes, our first instinct is to run when the market takes a turn, however your advisor may advise against it. That’s because, depending on your circumstances, jumping ship too early could prevent you from recouping any losses, should the market change.
There is no guarantee of how the market will perform in the future, however history is often a solid indicator of how it could react. The good news is that historically bear markets do recover. If you have the flexibility (and years) to do so, you may be advised to ride the downward trend out in hopes that you can recoup your losses when the market eventually stabilizes and begins to add gains. Remember, this decision is one that should be made with a trusted financial partner, and in conjunction with the rest of your retirement income strategy.
#3: Rebalance And Reassess Your Risk
Use this most recent market crash as an opportunity to assess your risk tolerance, meaning this could be an ideal opportunity to reassess your personal tolerance for risk. If you’re allocating assets in a similar manner as you were while working full-time, for example, you may find that rebalancing your portfolio is well past-due.
Take time to talk with your financial advisor about your portfolio, specifically the balance between stocks and bonds. It is tempting during unstable times to change how you allocate your assets and lean more heavily in favor of a fixed income. This could be the right step for you, but you want to make sure this is a step being taken out of logic and confidence, not fear of risk. Remember that removing risk altogether could mean missing out on crucial returns later down the line. As is true for most portfolios, yours is likely to contain a mix of fixed income and stocks.
#4: Adjust Your Budget
You can’t control the market, but you can control other aspects of your financial life - including your spending and saving strategies. Now could be a great time to examine your weekly or monthly budget and see where adjustments can be made. You don’t want to pull from your investments and/or sell your assets if minor lifestyle changes will suffice. Whether that means eating out less or reducing the number of trips you budget for each year, evaluate ways in which you can reallocate “fun” money to cover necessities. And as you do, remember to include contributing to your savings account or emergency fund as a top priority.
When a market crash occurs, it can feel like the future of your finances is out of your control. But with a financial partner by your side, these steps can provide both a well-thought-out plan and peace of mind for your retirement.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.