How to Handle Market Volatility When You Are Already Retired

• Author: Kelly Cooke
• Posted: 2024-06-01

If you are already retired, chances are that you may be relying on your investment to provide you with either income or principal. You need this money to live on to supplement your Social Security check. This is precisely why volatility in the stock market can terrify you. However, you need to maintain a level head when handling your retirement money in a bear market. You can even take advantage of the opportunity to earn some extra money in your retirement accounts. However, the operative words here are to "be careful."

If you are already in retirement, chances are that you should be as worried about market volatility because you would have already begun to shift many of your assets towards safer investments. While retirees should not solely be in bonds, they should also not be heavily weighted in all stocks. Nonetheless, even having a portion of your assets in the stock market is frightening when the market is whipping around on a daily basis.

Take a Deep Breath and Do Not Panic

The most important thing that you can do when you already in retirement is to take a deep breath. People lose the most money and make the worst decisions when they panic. Try to remember that things generally end up alright in the long run when dealing with the stock markets. Even if your statement shows you down money this month, there is nothing to say that the situation will still be the same next month or next year. It is levelheaded investors who are the ones who are able to best weather the storm.

When you have a handle on your emotions, you can begin to figure out how to take advantage of the situation for your benefit. If you use small portions of your retirement account, you can even catch the market at strategic buying points to add a little bit of money for your portfolio. Even if you do not have extra money to put in, you can reallocate your portfolio to make money. For example, if your portfolio is 50-50 between stocks and bonds, you can go to 60-40 stocks for some time. In other words, you can invest with maybe 10-20% of your portfolio to use the volatility to your advantage. The important thing is to not make any moves with all of your retirement assets. If you are wrong in trying to time the market, you will pay dearly.

The other thing is to remember to stay disciplined and not do anything rash in response to the stomach-churning moves. We have heard of people who sold all of their stocks and went to all cash because they were scared, only to see the market rip higher because they sold the bottom. If you have a financial plan for retirement, the important thing to remember to stick to the plan. Only make adjustments after careful and measured consideration. You may want to consult with a financial advisor if you are trying to make any adjustments that are more than minor.

Keep Some Money Handy So You Do Not Need to Sell in Panic

It is also critical to make sure that you have some liquidity. This could be in the form of an emergency fund or other cash savings. It is important to have enough money to pay a few months of bills on hand. The last thing that you want is to have to sell off some of your retirement assets to raise money to pay for unplanned expenses. When you are in retirement, there is a higher chance that you can be hit with medical expenses due to your Medicare coverage. If you are forced to sell stocks to pay bills, you may end up selling at poor prices. Thus, it is vital to have enough money on hand so you do not need to panic sell assets.

Much of the planning for market volatility comes ahead of time. You need to consider what would happen to your financial plan if the stock market dropped 20% or more. Being prepared can help you avoid bad decisions that you would otherwise make when you are scared. You should stress test your own monthly budget to figure out what would happen in your retirement assets were to suddenly shrink. This will even more important as the stock market prepares the enter the election season.