Market Volatility and Your Retirement Plan

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Market Volatility and Your Retirement Plan

Navigating retirement savings during volatile markets is no easy task and can startle even the most experienced planners. No matter where you are on your retirement path, it’s important to keep the following in mind when navigating a volatile market.

Stock market volatility is scary to many, but you can’t let it ruin your retirement plan. 

The Russia/Ukraine situation has prompted markets to react, but volatility was already likely this year, with central banks withdrawing monetary policy and interest rates on the rise. But that doesn’t mean you should avoid the stock market all together. In fact, the main enemy of investors is still inflation and investing in the stock market gives your money the best chance to grow.

While we can’t control the stock market, we do have control over many aspects of our retirement savings. No matter where you are on your path to retirement, it’s important to keep the following in mind when deciding whether or not to remain invested.

With longevity seeing Americans retire for 25+ years, long-term investing isn’t just for the new generations. The SECURE Act and SECURE Act 2.0, gives retirees who have part-time income additional opportunities to save for retirement. Also, if you are over the age of 50, don’t forget catch-up contributions to your IRA! You can contribute an extra $1,000 a year, up to a total of $7,000. If you didn’t max out your 401(k) or IRA in 2019 already, the recent pullback gives you an opportunity to invest before the 2019 deadline (April 15, 2020). While today’s markets can create buying opportunities, ensure you also have sufficient cash reserves to weather the storm.

Diversifying your portfolio is one of the big key things that you can do to decrease risk. When you have a portfolio that has bonds and stocks, the bonds can help counterbalance market volatility, and the stocks will keep the principal intact and counterbalance inflation.

One of the main types of diversification is called asset allocation, which essentially balances risk and reward by distributing your portfolio’s assets to better meet your goals, risk tolerance, and investment time frame. When it comes to asset allocation, it is best to work with a trusted and experienced financial advisor so you can ensure that you settle on an asset allocation method that best matches your age and investment goals.

While a diversified portfolio can still lose money, it can help to hinder your losses by decreasing overall investment risk.

We’ve said this before, and we will say it again… always have an emergency fund in place.

Significant, unexpected expenses can come along and if an expense occurs during a slump in the market, you will not want to take money out of your investments to help pay for an unexpected expense. Your best option is to grab cash from your emergency cash fund.

We recommend you save enough cash to cover six months’ worth of basic expenses as a general guideline. To get started, first figure out how much to save by using our free online Financial Calculators.

With inflation measures reaching some of their highest levels in decades due to the COVID-19 pandemic, it’s no surprise that 72% say they are concerned the rising cost of living will impact their retirement plans, and 70% say they are worried they will be unable to afford the lifestyle they want in retirement. (According to the Federal Reserve). Furthermore, 78% of U.S. adults expect inflation to get worse over the next year and 69% say it will negatively affect their purchasing power, a survey from Allianz Life found.

What can you do? Incorporate inflation into your retirement plan that addresses the potential of (probable) future spikes. In other words, address inflation head-on. Strategies should include making sure you get the most from Social Security to protect your future retirement income and choosing investments that hedge against inflation, and find ways to save at home.

The economy, along with the stock market, will always have up and down points. And acting out of panic and emotion can do serious harm to your future funds.

If you have the right investment plan, you shouldn’t need to make rash decisions during times of market volatility. A plan that takes into account your long-term financial goals and risk tolerance and includes a portfolio of diverse assets, will better prepare you for inevitable market changes. Most importantly, whatever you do, don’t panic and speak with your retirement income advisor before making any changes to your retirement plan.

Various events can cause market fluctuations−pandemics, shifts in government policies, crises in foreign countries, changes in economic data, and so much more. You can’t control how these forces may impact the market, but you can take steps to mitigate their impact on your retirement portfolio.

The smartest move right now is to embrace some time-tested principles based on your personal goals and time horizon. If you would like some guidance during this turbulent time, don’t hesitate to speak with the trusted financial advisors at CKS Summit Group. We are here to help you with your investment journey and set the right goals for you.

Contact us here today to set up a complimentary strategy session.