It may be time for the stock market rally to come to an end and also time to protect your retirement.
Stocks have rebounded since the very tough times of the market crash in 2008, so it might be a good time to consider that the rally is likely to come to an end at some point. However, there are ways to help protect your retirement, according to Money in “This is the Best Way to Recession-Proof Your Retirement, According to Experts.”
Is there anything that can be done do to protect your retirement accounts from the next financial disaster? Those who are closest to retirement, are always the most vulnerable to drops in the stock market, and those who are retired and drawing down savings are even more at risk. However, you can build a financial buffer to help your retirement funds survive any downturns.
No one knows when the next recession or stock slide will occur. There will always be one, so it’s best to be prepared. It’s simply an acknowledgement of the real risks of markets. On average, recessions last about 18 months. What can you do?
Build a cushion. Commit to building an emergency fund. That should be three to six months of expenses. And it doesn’t matter how rock solid or large your retirement investments are. If you take money out prematurely, it’s going to weaken your portfolio.
Pay down all debt, or as much as possible. That is key to feeling fiscally secure, once you leave the workforce. This is because less of your assets are tied up in long-term retirement investments. Tackle the highest interest rate debt first.
It’s far easier to adjust discretionary expenses, than it is to add cash to a stockpile. You can skip a vacation. You can’t skip a mortgage payment.
Depending on how close you are to retirement, consider tweaking your investment portfolio. Portfolios can become unbalanced over time, as assets in different classes grow or fund managers change. Review your portfolio to limit your exposure to volatility. Scrub out any unnecessary risk. That may include putting some money in cash or cash equivalents, like savings accounts, CDs and short-term bond funds.
You don’t have to be very conservative on the entire portfolio. People nearing retirement age usually trim some of their stock holdings. It’s not now as black and white. You’ll need stock growth to outpace inflation, so your equity allocation must be fine-tuned.
Many retirees are working part time jobs to keep some cash coming in and minimize what they take from retirement accounts. If you’re earning enough to live on, you can even avoid taking any distributions, except those that are required. Be aware of how your income impacts your Social Security benefits and taxes, if you have already started to take benefits.
There are other advantages to working part time. It keeps you active and engaged with others, allows your mind to stay sharp and offers the opportunity to socialize with new people.
Reference: Money (March 13, 2019) “This is the Best Way to Recession-Proof Your Retirement, According to Experts”