Few ever feel ready for retirement, but a tumbling stock market can shake the confidence of even the most prepared.
And with the coronavirus outbreak socially distancing us from three years of steady stock gains, nobody could blame you for feeling like we’re on shaky ground.
Maybe everything will be fine in a few weeks and return to normal — or maybe we’re headed for a rough recession. Without any way of knowing, you may be strongly tempted to make some financial moves right now. But should you?
That depends on your personal situation and your appetite for risk. Let’s talk it through, starting with the simplest and safest options and moving toward riskier and more complicated ones.
1. Work longer
The less you have to dip into your investments at what may be one of their lowest points, the more potential and time they have to recover.
That means if your health and situation allow, continuing to work is the safest step to take. It gives you an opportunity to keep growing your nest egg instead of raiding it.
Even if you can’t work full time, you may have more options than you realize — from taking on a project-based or consulting role at a previous employer to picking up part-time and work-from-home jobs that didn’t exist a few years ago.
Check out “19 Ways to Make Extra Money in Retirement” and consider a service like FlexJobs, a subscription-based jobs board that manually screens postings for work-from-home jobs and other flexible work.
2. Wait it out
This is the stock advice everyone hears during bad times: Sit tight and wait for the market to recover.
Yes, your situation is more pressing than people who have several more years of work ahead of them. But to the extent you can, avoid touching your investments and otherwise proceed as planned with your retirement.
This is the simplest course if you’re not in a position to continue working or pick up work. It’ll go smoothest if you already have enough cash to cover a couple of years’ worth of living expenses.
If you’re not yet drawing Social Security and are younger than 70, there’s one more big benefit of waiting: You can boost your monthly Social Security benefit payments.
Check out “Maximize Your Social Security” to learn how to obtain a personalized report on the best way to claim benefits.
3. Examine your portfolio
Reviewing your investments might give you the peace of mind you need to wait it out, or it might spur you to make some needed changes.
For a starting point, compare your current asset allocation with the rule of thumb Money Talks News founder Stacy Johnson often recommends.
As he explains it in “5 Mistakes That Will Ruin Your Investment Returns“:
“Start by subtracting your age from 100, then put no more than the resulting figure as a percentage of your long-term savings into stocks. So if you’re 25, 100 minus 25 equals 75 percent in stocks. If you’re 75, you’d only use stocks for 25 percent of your savings.”
Are you too heavily invested in stocks? Are you safely diversified in index funds, or dangerously concentrated in a sector that might get hit harder? What are the fees like on your accounts?
More importantly, what does your gut tell you about the possibility the market could drop by half, as it did during the Great Recession? Is that something you can handle?
These are questions you should be asking yourself regularly, and long before the economy sours.
To get step-by-step directions for scrutinizing your portfolio, check out “Year-End Review: Evaluate Your Retirement Accounts in 15 Minutes or Less.”
4. Reset your expectations
Here’s another retirement rule of thumb: Plan to withdraw 4% of your savings annually. If you want to keep pace with inflation, you could modify this rule of thumb by increasing your 4% annual withdrawal by the current rate of inflation.
That should give you about 30 years’ worth of money to work with.
So, it’s time to do some math: Could you live on 4% without adjusting for inflation for a few years, if you had to wait for the market to recover from a crash? If you can tolerate a little squeeze now, you’re less likely to face a far bigger squeeze later.
It’s much easier to adjust your expectations than your portfolio.
5. Ask for help
If you don’t already have a financial adviser, you’re likely wondering whether you need one or how to find someone you can trust.
It’s reasonable to be skeptical. Some people do fine without a financial adviser. And most advisers aren’t legally required to act as a fiduciary, meaning they aren’t obligated to put your best financial interests before theirs.
So, the first thing you’ll want to do is rule out commission-based advisers and look for someone who will charge you either a flat fee or by the hour, just like an accountant would. This makes even more sense if you’re not looking for a long-term relationship and just want a professional to evaluate your gut reaction to a downturn.
Check out our Solution Center for help finding a financial adviser in your area.
6. Consider an annuity
If all the variables of retirement are becoming too overwhelming, an immediate annuity is another option that could provide some consistency and simplicity.
An immediate annuity is essentially a pension, but from an insurance company. You pay them a lump sum, and they pay you a guaranteed monthly income.
Pair an annuity with Social Security, and you could worry far less about what the market is doing.
But while annuities might sound straightforward, there are several kinds — and they can be quite complex and full of fees. Do your homework, starting by checking out “Ask Stacy: Should I Buy An Annuity?”
7. Roll the dice
The thinking behind Stacy’s asset allocation rule of thumb mentioned previously is to continually rebalance your portfolio to reduce your risk as you age. The less of your money you have tied up in the stock market, the less you need to worry about the market tanking.
This limits the nightmare scenario of a sudden shortfall — but it also arguably increases the danger of a gradual erosion of your retirement savings from inflation.
Once you take your money out of the stock market, it will generally grow at a slower pace, which may not be enough to address rising costs. There is always the risk you have more years than money.
What if you don’t walk out of the market, but instead hold your investment steady, or even double down by increasing the percentage of your portfolio in stocks? Of course, you challenge the conventional wisdom at your own peril.