This year, retirees and investors approaching retirement are under stress. Stocks have plummeted, bonds—a haven in normal times—have declined, and inflation has risen to multi-decade highs. As a result, this is a typical portfolio’s worst year in the century.
According to a Fidelity survey released in mid-November, the average 401(k) balance is down 23% this year to $97,200. Unsurprisingly, according to a Natixis survey, most high-net-worth investors anticipate working longer hours than they had planned.
So you are not alone if you worry about your retirement money while the markets are down. Here are a few ideas to remember as you navigate market turbulence.
1. A chance to buy cheap
One of the fundamental principles of investing correctly is buying fewer shares when prices are high and more shares when share prices are low. This is possible if you invest a certain amount of money regularly.
Systematic investing entails making regular, ongoing investments regardless of changing share prices. You must have the financial resources to continue making purchases during extended periods of high and low price levels, even if this technique cannot guarantee a profit or prevent a loss.
2. Retirement Strategy
A crucial element that can influence the long-term viability of a nest egg is the risk of experiencing low investment returns in the years immediately preceding or during the early years of retirement. Fortunately, there are specific strategies that can reduce this danger.
Consider using a tiered investing plan in which different portfolio tiers represent your short-term, medium-term, and long-term needs for income and growth.
The amount you require for the next two to five years, invested in assets meant to hold their value, could be kept in the short-term tier(s). Investments in the three- to ten-year period could be kept in the medium-term tier(s). Finally, the higher-risk, higher-growth assets you wouldn’t need for the next ten years could be kept in the longer-term layer or tier. Typically, this layer is meant to power the strategy throughout your retirement and feed the shorter-term levels.
Another option is an instant annuity, which gives a predictable retirement income stream you might combine with Social Security and any other regular income streams to pay your fixed needs. You could use some of your retirement funds to acquire one.
An instant annuity is an insurance-based contract where you make a single lump sum payment to the issuer in exchange for the issuer guaranteeing consistent income payments for a predetermined amount of time or the rest of your life.
Annuity contracts typically include fees and costs, restrictions, exclusions, holding periods, termination clauses, and conditions for retaining the annuity in effect. Abandon fees are also typically imposed when a contract owner surrenders an annuity. In addition, annuity earnings withdrawals are subject to regular income tax.
10% of withdrawals made before 59 1/2 may be penalized. Additionally, any annuity guarantees are subject to the insurance company’s ability to pay claims and maintain financial stability.
3. Bear markets eventually expire
Seven bear markets occurred between 1970 and 2021, with the longest lasting less than three years. In addition, a brand-new bear market started in January 2022. Despite these slumps, a hypothetical $10,000 investment in an index like the S&P 500 around 1970 would have increased to more than $2.3 million by the end of 2021 and remained worth about $1.8 million after the first nine months of the bear market in 2022.
4. A financial expert can assist
Your financial advisor can act as an unbiased third party to alleviate your concerns and assess potential portfolio changes if unpredictable markets cause you to doubt your retirement investing strategy.
All investments are susceptible to market volatility, risk, and principal loss. When shares are sold, their value may be higher or lower than when they were purchased. Investments with larger return expectations also carry a higher risk. Working with a financial expert does not guarantee improved investing outcomes.
Conclusion
Retirement worries among investors are not unwarranted, but everything is not doom and gloom. Take a longer view and explore opportunities to earn and save more money over the following years rather than concentrating on the previous year’s losses. Analyzing new strategies and committing to intelligent planning will help you take advantage of the chances ahead and possibly even turn some lemons into lemonade, whether you’re close to retiring or have already passed your working years.•••••••
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