Date: Sep 22TH, 2022

Retirement Planning – Preparing For Market Volatility in Retirement

While financial market volatility is often nerve-wracking for any investor, it can be particularly daunting for those who are close to or at retirement age. When market dips happen – such as the significant ones the markets have seen recently – investors need to sell more shares to raise the same amount of cash than they would have several months ago. This is doubly problematic: not only does it drain shares out of the account faster, but it limits the ability of the retirees to benefit from market dips by buying. 

Anticipating a Bear Market

What is a bear market? According to one official definition (Investopedia), a bear market occurs when a market experiences prolonged price declines. It typically describes a condition in which the prices of securities fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment. With many economists predicting a modest recession in the near future, the bear market may be with us for the next several years. 

How Long Will the Bear Market Last?

There’s no way to predict this, but research conducted by the Schwab Center for Financial Research that examined data from the 1960s through 2021 found that the average peak-to-peak recovery time for a diversified index of stocks in bear markets was about three and a half years. This means you may have several years in which your investments aren’t working out for you how you hoped. 

What Can You Do to Manage Your Retirement Funds?

Retirement experts recommend that, if possible, you prepare in advance by holding the equivalent of a least a year’s worth of anticipated cash withdrawals in easy-to-access places like checking or savings accounts, money market funds, or certificates of deposit (CDs). If you can, it’s also recommended that you prepare between two- and four years’ worth of expenses in relatively liquid, conservative investments such as short-term treasury bonds and other high-quality bonds or short-term bond funds. 

Other steps you can take include:

Reducing your spending. It’s time to cull your budget and look for things that can be eliminated or put off until the market recovers. 

Budget ruthlessly. Now is not the time to be winging your household budget. Consult with a professional and sit down to create a workable budget that will help your money last longer. 

Raise some cash. To help you build up your cash reserves, look for solutions to raising some cash. Do you have a property you can rent? Do you have cash in old accounts that you haven’t done anything with? Do you have things you can sell? Can you monetize a “side hustle”? Can you withdraw money from a prepaid subscription? If you’re a married couple still maintaining two vehicles, can you sell one? All of these things can help you raise cash to build your cushion. 

If you must tap into your investments, do it wisely: consider using the principal from maturing bonds or CDs, and look to interest and dividends from your taxable accounts. Consult with a professional financial services company to help guide you through the best course of action. 

Arizona-based Prime Wealth Advisors is a full-service tax, retirement planning, estate, and wealth management firm that can take the guesswork out of filing your taxes. Call 623.77.PRIME or visit our website for more information.