If you’re just on the cusp of retiring, you’ve probably been rattled by all the recent downward moves in the stock market and how they’ve been impacting your retirement accounts.
How to Understand Stock Market Cratering in Light of Your Retirement Plans
Headlines that provide a steady drumbeat of negative economic news are hard to escape. But if you’re about to retire, they’re more than just headlines to you. They could actually pose a threat to your retirement plans.
So what should you be doing right now?
Money expert Clark Howard says a lot depends on how you were going to pay for retirement.
“Most people who are about to hit retirement have a portfolio that’s diversified — and stocks are only a portion of their portfolio — so it’s probably still OK to retire,” he says.
For example, when you’re within a year or two of retirement, you should have a certain amount of money in cash or cash equivalents. That way you don’t have to get too stressed over market fluctuations.
Clark says he has two years of living expenses stashed in municipal bond funds, which are a cash equivalent. A more common cash option would be something like a high-yield savings account.
If you’re already in retirement, Clark says you may want to have three years of money in things like savings accounts that aren’t going to fluctuate a lot — if you can afford it.
This prevents you from panicking over the bad economic news of the day and feeling like you’ve got to sell everything so you can meet your living expenses.
However, if you have suffered a serious erosion in the money you were planning to live on, it means that you may have to work a little longer than you originally planned, Clark says.
What Should You Do if You’re Recently Retired?
We’re also getting a lot of questions from folks who either retired earlier this year or are recently retired. They’ve been spooked by the big market drops, too.
Clark’s response to those people is that they should look at how many different sources of retirement income they have.
“I had a guy the other day [on my radio show] who was really worried about his portfolio,” he said. “As we talked, it turned out he can cover…all his living expenses from Social Security and a pension.”
“So even though this [market sell-off] felt ugly to him, this was really a non-event for him.”
No doubt about it, this is a really scary time to be in the market. But if your portfolio was well-diversified before the coronavirus reared its ugly head, you increase the likelihood that you can move ahead with your retirement as planned.
Visit clark.com/coronavirus for updated financial-related information that you can trust.