Layin’ It on the Line: How to safeguard your retirement savings against market volatility
Hello, Baby Boomers and seniors! Are you one of those who either is approaching or already in retirement? The term “market volatility” probably has reached your ears more than you can count. And why wouldn’t it? The market can change from highs to low in the blink of an eye, and when your hard-earned savings are tied to those ups and downs, it can feel like a roller coaster ride you didn’t sign up for. But fear not, because there are ways to guard your retirement savings against the volatility of the market — a guarantee that you will spend your retirement with confidence and peace of mind.
Let’s look at some of the strategies that can help protect your retirement funds from market ups and downs, so you can go to bed knowing your financial future is secure.
1. Diversify your portfolio
One of the golden rules of investing is diversification, and for good reason. The idea of spreading investments across different asset classes — stocks, bonds, real estate, cash equivalents, and other safe-haven assets — reduces risk. Where a turbulent market may see some of those assets tumble, others will remain stable or even thrive, balancing out the damage.
This becomes more important for retirees. You want to be sure you have a mix of investments that offer growth potential but protect you against downturns. Some of your money could be invested in bonds or other low-risk investments, which tend to be less volatile during rough market periods.
Tip: Speak to a financial advisor to help you diversify your portfolio in ways that fit your comfort level and retirement goals. A prudent approach will set the table for long-term financial security.
2. Consider safe money strategies
The last thing you need when living on retirement savings is to be losing any money due to market fluctuation. Safe money strategies involve using money in the form of CDs, bonds, or fixed-rate investments, which would give the security of not having money exposed to the market fluctuations
One option to consider is principal-protected investments, which ensure that you will get your initial investment back, no matter what happens in the market. Though they may not offer as much growth potential as riskier investments, they give you peace of mind, knowing your money is safe.
The obvious examples include fixed-rate products where your investment earns a pre-stated return over time, even through market volatility. This becomes an excellent option for retired people who require predictable income in a stable manner.
Hint: Remember the indexed products that tie in performance to the stock market’s performance but provide you protection at the same time — a guarantee of floor — you don’t lose money if the market ditches.
3. Have a withdrawal strategy
Perhaps the worst thing that retirees can do is to withdraw money from their retirement accounts during a market decline. Doing this will lock in your losses and diminish your potential for long-term growth. In its place, have a decent withdrawal strategy that will let you withdraw funds without touching the volatile parts of your portfolio.
Consider a bucket approach whereby your retirement savings are divided into three buckets based on your timeline: Bucket 1: Short-term funds (the next 5 years) in safe, low-risk investments. Bucket 2: Mid-term funds (5-10 years) in moderate-risk investments, offering some growth but with an eye on stability. Bucket 3: Long-term funds (10+ years) in higher-risk investments, with the potential for growth, but not needed for immediate income.
This allows for safe money to be accessed, when needed, while the longer-term investment is given time to grow after periods of market turbulence.
Tips: Have a financial planner develop a withdrawal strategy to lessen the impact of market fluctuation on income drawn from retirement portfolios.
4. Consider guaranteed income options
For retirees who wish to avoid the stress of market volatility, guaranteed income options, such as pension-like products or fixed income strategies, can offer peace of mind. These products offer steady, reliable income that isn’t impacted by market performance, which can help maintain financial stability in your retirement years.
You can also look into life income products designed to pay a certain income for the duration of one’s life. It implies that regardless of the date of death, the money comes in periodically and might be very useful during one’s retirement period.
Tip: Assess your need for guaranteed income based on your retirement expenses and longevity expectations. If you are unsure, consult with a financial advisor to determine if guaranteed income products may have a place in your plan.
5. Keep an emergency fund
Life is unpredictable, and an emergency fund can cushion the effects of unexpected expenses or short-term market downturns. You want to try to save three to six months’ worth of living expenses in a safe, liquid account that you can pull from if need be. This will ensure you aren’t forced to sell investments during a downturn to cover unexpected costs.
This financial cushion will help you weather market volatility without being forced to dip into your retirement funds at an inopportune time.
Tip: Store your emergency fund in a high-yield savings account or a money market account for easy access and some interest growth, but keep it separate from your long-term investments.
6. Rebalance your portfolio regularly
Even if you’ve set up a diversified, safe investment strategy, it’s important to review and rebalance your portfolio periodically. Over time, some investments will grow faster than others, potentially skewing your asset allocation.
For example, over time, if your stocks do well, your portfolio may shift to an equity-heavy portfolio, making you a little more vulnerable to market risks. Rebalancing will help you maintain an appropriate asset mix that is aligned with your risk tolerance and retirement goals.
Rebalancing doesn’t involve a series of drastic changes after the movement in the market. Every time the situation warrants, consult your financial advisor to review the portfolio and make necessary changes that can align your investments toward meeting your goals.
7. Stay cool; keep off emotional decisions
Market volatility can make even the most seasoned investor nervous, but emotional decisions often lead to financial mistakes. Fear during market drops can cause some to sell low, locking in losses and missing out on a rebound. On the flip side, greed during market rallies can prompt overexposure to riskier investments.
To protect your retirement savings, avoid making knee-jerk decisions based on emotions. Stick to your plan and focus on your long-term goals. Sometimes the best course of action is to simply sit tight and ride out market fluctuations.
Tip: If market volatility makes you nervous, step back and talk to a financial advisor. They can help you stay focused on your goals and remind you that your strategy is sound.
Conclusion
Retirement is the time to enjoy life, not to be concerned about market volatility. By following these strategies — diversification of the portfolio, safe money products, a solid withdrawal strategy and remaining calm through market swings — you can safeguard your retirement savings from market fluctuation and enjoy a financially secure future.
Remember, the key to market volatility is not to avoid it but to plan in advance and build a retirement strategy that can withstand ups and downs. A well-structured plan combined with the right safe money strategies will give you the confidence you need to enjoy retirement without worry.
Lyle Boss, The REAL BOSS Financial, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West States. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.