I’m retired. How do I protect my money in a bear market?
A little rebalancing of your investments—and your budget—can go a long way.
A bear market will take its toll on even well-built retirement portfolios. Try these five rules of thumb for hanging on to your hard-earned savings and investments.
Simply analyze the situation and adjust as needed. Think about trimming expenses, increasing savings, and/or delaying or easing more slowly into retirement.
Unless you've just realized that you're not as risk-tolerant as you thought, avoid changing your long-term portfolio asset allocation because of short-term market behavior.
It is, however, a good time to think about rebalancing your mix of stocks and bonds to your long-term target allocation.1
Set aside enough cash to cover your routine expenses for one year (minus what you expect from reliable non-portfolio sources of income, such as Social Security). Keep that money in a relatively safe place, such as a savings account, money market fund, or short-term certificate of deposit (CD). Keep another two years' worth of expenses in high-quality, short-term investments as part of your fixed-income allocation.
We believe a good rule of thumb is to withdraw 4% of your portfolio in the first year of retirement, and increase that dollar amount every year by the rate of inflation. We estimate that a conservative-to-moderate portfolio that follows this rule has a 90% chance of lasting for 30 years.
As for the "or less," during adverse market periods like the current one, you might want to take out only enough to cover non-discretionary expenses.
If you need it, you need it, but it'll end up costing you. If you're under age 59½, you'll pay a 10% federal penalty and income taxes on the withdrawal (state taxes and penalties may also apply), and you'll give up potential compound growth.
Borrowing from your 401(k) is a second-to-last option. Keep in mind, if you take out a loan from your 401(k), you'll have to pay the loan back with after-tax dollars. And if you leave your job, your loan balance will be due when you leave.
If a bear market made you nervous and you sold your stocks, now is a good time to re-evaluate your tolerance for risk. Having at least 20% of your portfolio in stocks can provide a hedge against inflation, so if you can still tolerate a minimum amount of risk, consider gradually reinvesting that portion over the next year.
Take the next step.
Call 877-673-7970 to schedule your personal retirement consultation.
Source: "Can You Still Retire?" by Rande Spiegelman, updated October 20, 2010.
1. Asset allocation strategies do not protect against losses or guarantee sufficient income for retirement. Rebalancing does not protect against losses or guarantee that an investor’s goal will be met.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided, including statistical simulations, are provided for illustrative purposes only and are not intended to imply future results you should expect to see. Past performance is no guarantee of future results.