A stock market drop can be especially concerning if you’re nearing retirement or already a retiree. We’ve found seven ways to protect your retirement in a volatile stock market, from Kiplinger editors Anne Kates Smith and Jane Bennett Clark.
Don’t Panic. Recoveries happen in time, as we saw after the 2007-09 market downturn...so fight the urge to sell. Hold onto your depreciated stocks and they should bounce back up in time.
Keep Your Portfolio on Track. Take a look at your portfolio, you may have to make changes to ensure that it is consistent with your tolerance for risk. T. Rowe Price recommends retirees keep 40 to 60 percent of their assets in stocks. Stocks stand up to inflation better than bonds and cash over time. Even 90-year-olds should keep at least 20 percent of their assets in stocks.
Make Sure Your Portfolio is Diversified. According to the Kiplinger article, a diversified portfolio is the best defense against the ups and downs of any single assets class or industry sector. Your portfolio should have a healthy mix of domestic and foreign stocks and bonds.
Stick With High-Quality Holdings. Don’t speculate -- invest in companies with dependable earnings, impeccable balance sheets and healthy dividends.
Tap Your Cash Bucket. Don’t sell your stocks, instead use Social Security, annuities and the part of your portfolio that holds cash and short-terms CDs to cover retirement expenses.
Rethink Your Withdrawal Strategy. The 4 percent rule is based on data of stock and bond returns over a 50-year period from 1926 to 1976. The Kiplinger article says now with stocks down and 10-year Treasury bonds yielding 2.8 percent, it might be a good idea to take back distributions down to 3 percent or less of total assets or take 4 percent and skip the inflation adjustment.
Postpone Retirement. Retiring later is a good idea because it gives you more time to save, lets money in your accounts grow -- plus, you’ll have fewer years of retirement to worry about covering.