Until recently, the stock market had been strong for more than a decade. And it’s easy to say that you’re comfortable investing your retirement savings in the market when you’re looking at double-digit gains.
If you’ve been making regular contributions over the years, and invested at least some of that money in stocks, you could have a significant nest egg built up by now.
But here we are. The uncertainty around the coronavirus and oil prices has triggered a volatile market. When you look at your portfolio, you might see a balance that’s dropped by thousands of dollars. And you may wonder, especially if you’re approaching retirement age, what you should do to protect your future.
First of all, don’t expect things to settle down right away. Greg McBride, chief financial analyst at Bankrate.com, doesn’t expect a quick end to the volatility. “Investors should expect continued gyrations both up and down until there is greater certainty on coronavirus,” he says.
But that volatility shouldn’t trigger changes in your investment strategy. “Disciplined investors that hold tight and have the fortitude to buy more when the stock market falls are rewarded in the long run,” he says. “The market’s best days often come in close concert with the market’s worst days, and you have to be in it to win it.”
Keep these five things in mind when the market is in turmoil and you’re close to retirement age.
1. Build a stash of cash
When you’re younger, experts recommend emergency savings of three to six months’ income. As you approach retirement age, you want to increase that amount so you aren’t forced to sell in a bear market.
“Make sure you have your first five years of withdrawals in cash and very conservative short-term bonds so you don’t need to sell into a downturn and can ride it out,” says McBride.
2. Stick with some stocks
It’s likely you’ll live for a long time after you retire, and you’ll need an income stream that lasts as long as you do. McBride says it might be prudent to have half of your portfolio invested in stocks.
“Even on the doorstep of retirement, you cannot afford to be invested too conservatively, as your nest egg may need to last 25, 30, or even 35 years in retirement,” he says.
3. Add stability with bonds or cash
Lower-risk investments like bonds or cash can help protect your assets. “Lower risk assets don’t have as much price volatility, and this adds a stable component to a broader portfolio,” McBride says.
But keep in mind that growth is also slower with these investments, since interest rates are currently low. Today’s savings accounts are returning less than 2%, which means they aren’t generating a lot of income. “You can’t afford to have too many eggs in this basket,” McBride says.
4. Don’t forget about other income streams
It’s likely that your retirement income isn’t 100% dependent on your retirement savings. Social Security should add some money, and you might also have pensions and annuities that offer predictable income.
Plus, many retirees continue working at least part-time. CNBC reports that more than half of people age 60 to 64 and almost one-third of people age 65 to 69 are still working in some capacity.
If you’ve built up equity in your home, you might be able to tap into that money. “For homeowners age 62 and up that have a large share of wealth in their homes, a reverse mortgage is an option to provide a predictable monthly income or line of credit for unplanned expenses,” McBride says.
5. Stay the course
Looking at the volatile market, you might be tempted to put more money into bonds, or to “buy low” and shift your investments into stocks. McBride doesn’t recommend making any adjustments. “Stay the course, provided that course reflects your overall time horizon, goals, and strategy,” he says.