Retirees worried about the stock market crater can use these strategies
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If you are retired, you may have watched the stock market decline nervously this week.
Of course, it looks like he’s climbing again. But if the market collapses once again and stays there for a while, what does that mean for your nest egg and your cash flow?
“It’s something that’s been coming up more and more lately,” said certified financial planner Matt Stephens, financial advisor at AdvicePoint in Wilmington, North Carolina.
While stocks have spent the year generally climbing higher, a confluence of factors is now shaking the markets.
Among the concerns: Treasury Secretary Janet Yellen said on Tuesday that Congress must raise or suspend the debt ceiling by October 18, or the United States will default on its debt. Additionally, Federal Reserve Chairman Jerome Powell has told lawmakers the inflation rate may stay high longer than expected, which could mean interest rates will start rising sooner than expected.
Major stock indexes fell on Tuesday, with the Dow Jones industrial average shedding 1.63% to close at 34,299.99. The S&P 500 Index lost 2.04%, ending the day at 4,352.63. The Nasdaq Composite Index fell 2.83%, closing at 14,546.68.
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When stocks are going to fall again, it’s impossible to know. And for retirees whose savings help fund their cash flow, any large drop can be daunting.
Keep in mind, however, that this week’s pullback follows double-digit returns over the past 12 months: the S&P is up around 30%, the Dow Jones has gained 25%, and the Nasdaq has climbed. by more than 31%.
When retired Stephens clients voice concerns about what might happen to them, he says he begins by reminding them that they will probably still need money in 20 or 30 years, which is why part of their portfolio is invested in the stock market so that their money can grow and exceed inflation.
“But they’re also going to need the money next month, next year and five years from now,” Stephens said. “Their equity investments may lose value during this time, so we have a number of years of retirement spending in bonds and other fixed income investments.”
Most of his retired clients have spent six to eight years outside the stock market, he said.
At a minimum, retirees should have enough less volatile investments to get through a 12-month stock market downturn, said CFP Ryan Marshall, partner at Ela Financial Group in Wyckoff, New Jersey.
“It’s like an emergency savings account, but for retirees it needs to last longer,” Marshall said.
Also, depending on the specifics of your stocks, it may be a good idea to sell some winners while they are up.
“Getting gains from your equity allocation now as the markets rise is a great way to build [your] liquid position without significantly sacrificing performance, ”said CFP Jamie Ebersole, founder and CEO of Ebersole Financial in Wellesley Hills, Massachusetts.
Additionally, if you’ve met your minimum required distributions in the past by tapping the equity side of your portfolio, a sustained falling market might mean rethinking that strategy. RMDs are amounts that must be withdrawn from qualifying retirement accounts each year once you reach age 72.
“If this is a sluggish year, we would most likely use the cash or bond portfolio to fund the RMD for that particular year,” Marshall said. “That way we don’t need to sell a position in stocks the year the market is going down.”