The business and financial media just eats this up — they love a good market dip. Headlines scream, experts pontificate, and the average retiree begins to perspire. I get it. I know because I’ve been there myself. Every time I saw the numbers on the opening screen turn red, that tight coil of anxiety would start tightening in my gut. After years of covering the markets for OverTraders.com, I've learned a crucial lesson: panicking about market dips is often the worst thing you can do, especially when you're in retirement.
I’d argue that the real truth is, market volatility is a feature—not a bug—of the investment world. It’s every bit as predictable as the arrival of fall colors and chilliness in the air. We’ve witnessed it over and over again throughout history. The crash of ’29, the bear market of ’73-’74, Black Monday of ’87, the bursting of the dot-com bubble, the crash of ’08 all seemed apocalyptic. Even with the challenges, the market always recovered.
Think about it this way: if you knew that every winter would be followed by spring, would you sell your house in a panic every November? Why would we do that, you ask. You’d get ready for the winter, with the understanding that spring times would come again. The idea is the same for your retirement portfolio.
The magic happens when you get your mind off the day-to-day market twists and turns back onto your long-term financial well-being. Looking to make sure you’re truly diversified? Have you started preparing a plan. Is your spending where it should be? These are the questions that really should be asked.
In fact, one of the most common errors I notice retirees make is getting too conservative too soon. The pull of safety is hard to resist. If you just keep it all in savings accounts that pay low yields, you can actually lose purchasing power over time due to inflation. It’s a stealthy, quiet menace, much more lethal than a short-term bear market.
Instead, think about maximizing the overall benefits to achieve a more balanced outcome. Having cash and short-term bonds, or bond ladders available can both go a long way to help you weather bear markets. Understanding that you have accessible resources to pay for basic daily expenses like housing can be hugely calming. On a personal note, I like knowing that I have a chunk of my own capital in short-term, liquid assets… so that I sleep well at night. I can rest easy knowing that I won’t need to liquidate my private equity or venture capital investments at a loss during a market downturn.
Putting a substantial allocation into bonds starting in your 50s to lower risk is a wise decision too. That doesn’t mean you should go out and haphazardly purchase any bond fund. Look for what works best for you. Invest directly in individual bonds, including U.S. Treasury securities, municipal bonds, debt instruments issued by corporations, bonds offered by government entities, mortgage-backed securities, and even bonds that originate in overseas markets. Each of these has their own risk/reward profile.
Outside of your investment portfolio, consider other avenues to strengthen your earning potential. For retirement savings beyond Social Security, think about buying a lifetime annuity or postponing the age at which you take Social Security to improve your income. Be proactive in retirement planning by working with a financial advisor. Taking these steps can dramatically improve your long-term financial well-being.
Tax planning, perhaps one of the most important aspects of retirement financial health, is the most neglected. Pull money out of your Roth accounts if you have to supplement your income. This approach allows you to skip raising your tax liability for the annual period. This can be one of the most powerful strategies for minimizing your overall tax liability throughout retirement.
Once you nail it down, don’t waver—that’s the way to get maximum impact! It’s not enough just to choose the right stocks or bonds. It’s really about knowing the level of risk you’re comfortable with, how long you have, and what you want to achieve financially. It’s all about developing a strategic plan that helps steer you through the inevitable peaks and troughs of the market.
Just having a detailed, thoughtful plan can go a long way toward limiting emotional impact and creating a disciplined framework for investing. It’s a whole lot easier to weather the inevitable storm and stay the course when you have a clearly defined strategy to lean on.
Keep yourself honest. Don’t make knee-jerk reactions due to temporary market conditions. That’s easier said than done, I know. Don’t lose sight of why you developed the plan in the first place. Make sure to keep your big-picture objectives in mind.
Develop and deploy risk management tools. Use stop-loss strategies and other risk management measures to cut losing investments and stay disciplined in your approach to investing. These tools allow you to safeguard your portfolio without having to sell in a panic.
Yet building emotional fortitude is equally important. Regularly review the reasons behind your investment strategy and individual investments to reinforce your commitment to your long-term plan. When the market turns volatile, revert back to the logic behind those initial decisions.
Realize that technology is your friend. Make data-driven investment decisions bolstered by deployment of technology to ensure objective, informed, data-driven choices are made. There’s no shortage of online resources catered to helping you understand your investment portfolio and guiding you to making more informed investment decisions.
Aside from whatever investment strategy you’re pursuing, honestly evaluate your finances as a whole. Take a look at your revenue and spending. Plan ahead to ensure your income can meet your typical out-of-pocket costs. Allocate some additional funds towards achieving your long-term financial goals.
Take a look at your savings rate. Try to keep at least three to six months of your expenses stashed away in an easily accessible savings account. This emergency fund can offer an essential lifeline in times of unforeseen financial hardships.
Assess your overall debt. Try the snowball or avalanche method to eliminate high-interest debt, which will help lower your debt-to-income ratio. By getting your debt burden under control, you can reduce both your cash flow strain as well as your overall financial stress.
Check your credit score first. If you have a lower credit score, don’t freak out. Do so, and you’ll be in line for much more favorable interest rates and terms! A higher credit score can save you hundreds of dollars every month on everything from mortgages to auto loans to insurance premiums.
Take an inventory of your insurance needs. Assess your health insurance, long-term care insurance, and other policies to make sure you have the right level of protection in place. Good insurance protects you against the unexpected big hit. It is a safety net that catches Americans when surprise medical bills or sudden health emergencies occur.
Ultimately, retirement is about more than dollars and cents. It’s an issue of freedom, security, and peace of mind. Don’t allow the specter of a recession or downturn keep you from pursuing what’s possible. Strengthen your financial case and demonstration project to scale strategy. Keep in mind, the market—as with life—can be unpredictable. Be ready for them, and think ahead of how you’ll respond, but don’t let them dictate your actions. Rather than fixating on temporary market downturns, redirect that focus into developing a robust financial plan. Long life, which truly is the key to a secure and fulfilling retirement.
