5 Ways to Protect Your Retirement from a Market Downturn

By Gary Greene, Sr. Vice President, Investments and Managing Director

Do the recent stock market swings have you more than a little nervous? Here are some do’s and don’ts for helping you weather the storm.

Many of the questions we are hearing revolve around uncertainty. Questions like:

“How do we adjust our retirement plan in these unpredictable times?”

“How do we deal with the uncertainty of inflation?”

“Is the overall market going to be like riding a roller coaster?”

Focus on the risks you can control

One of the things you can control is the level of risk you have in your savings. This is more important than ever, given the uncertainty we’re experiencing now.

When you are about to retire, you are launching into the great unknown. Your paycheck goes away, and you begin living off a nest egg you’ve worked hard to build over the years. This is where relying on the expertise of your financial advisor becomes more important than ever.

Regularly stress testing your portfolio is critically important in order to assess its ability to withstand a sharp market downturn. A retirement plan stress test may reveal that you need to set up new parameters to reduce your portfolio risk in the event of a significant downward market swing. We can help you do this and help you make sure that a worst-case market scenario is not going to derail the future you worked so hard to build.

In times of uncertainty, it can be easy to make knee-jerk decisions and lose sight of the long term. Here are some do’s and don'ts when planning or adjusting to deal with a volatile market:

5 Ways to Weather Market Volatility

  1. Don’t take early withdrawals from your 401(k) or IRA. While this might seem tempting during volatile periods, it’s typically not a good idea to take cash out of your 401(k) before age 59½. Doing so subjects you to an early withdrawal penalty of 10% as well as having to pay tax on the additional income that year. Required minimum distributions don’t begin for most people until they reach age 72. Those in-between years from 59 to 72 are when many people are still working these days and growing their money in these tax-deferred plans. And if you decide to withdraw funds from them after age 59½, remember they will be taxed as ordinary income.
  1. Do consider when you will retire and where your income will come from. Think about the timing of your retirement when deciding on strategies to help survive volatile markets. Changing your investment strategy to prepare for retirement isn’t something to leave until the last minute or until after you retire. If you are already retired, it helps to have a plan, so you know where your income will come from for the rest of your retirement. One of the keys is dividing your money for different purposes. For example, if the market stumbles, have different money buckets set aside for income during that down time.
  1. Do review your asset allocation. For many people, shifting to lower-risk investments as retirement nears could be a good idea. Keep in mind, if you’re investing in a target-date fund in your 401(k), the allocation automatically becomes more conservative as your target retirement date gets closer.
  1. Don’t make decisions based on emotions. This can be an easy trap to fall into when your financial future is at risk. You may want to pull all your money from the market when it drops in an attempt to save your investments, but for many, it may be wiser to allow time for the market to recover. Making hasty decisions can be counterproductive in the long run.
  1. Do rely on help from your financial advisor. One benefit of having an experienced financial advisor in your corner is having access to someone who has dealt with market drops before. We've worked with clients who have learned to ride out the most stomach-churning market cycles. And, unfortunately, we've seen the devastating impact when investors follow the urge to jump out mid-ride. So how can we work together to play it smart in a roller coaster of a market?

For starters, let’s keep the lines of communication open. If you’ve collaborated with us to tailor a strategy you know it is built to help you find the clearest path to your goals through a variety of market situations. You know you can rely on us to guide you through the market swings that have your nervous. And, we’ll address the questions and concerns that keep you up at night.

In our decades of experience, a carefully constructed financial plan that we regularly monitor means you don’t have to panic at every pullback. Rely on us for advice on how to help manage the effects of the markets’ movements and stay focused on your objectives.

Market volatility, low interest rates and the overall uncertainty that comes with planning for retirement can cause concern. But there are ways to prepare your financial plan to respond to future market drops. The key is getting on top of that plan now before things beyond your control get on top of you.

If you have questions about recent market events or your long-term financial plan, please let us know. We look forward to helping you.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Gary Greene and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

You should discuss any tax or legal matters with the appropriate professional.