Near-retirement investment strategies when the markets are volatile

When the stock market swings, many people’s moods swing with it. And, the closer you are to retirement, the more frequent those mood swings might be.

Unfortunately, though, feelings and money rarely form a good combination, which makes having a plan even more important when you’re near the retirement finish line. If you’re just a few years out from retirement or retired within the last couple of years, these insights can help you protect your savings—and the financial goals you’ve saved for—if the markets are volatile.

Perhaps you’ve always had a firm date and age to retire. That’s great; if you’ve saved enough and feel good about your budget, you can stick to that timeline.

But if you’ve never had an exact day pinned on the calendar, or feel working longer might benefit your finances, you’re not alone.

Working longer may help retirees who need to or want to delay dipping into their retirement savings. And if markets are volatile and it’s an option for you, it may help you protect and add to what you’ve put aside.

It may feel counterintuitive to save when markets are volatile, but the money you put away also has growth potential for when markets cycle back up. In fact, if you stop contributions or make untimely withdrawals, you may face what’s called abandonment risk—the possible negative impact on your retirement savings these actions may cause. If you exit during a downturn, you may lose the potential for growth, reduce your overall savings, and ultimately put your long-term goals at risk.

One option to think about is boosting 401(k) or individual retirement account contributions, automatically if possible. You could funnel a percent or two of any salary increase, or an entire bonus as a lump sum, or take advantage of catch-up contributions once you reach age 50, into retirement savings. If you make a lump-sum contribution when the market is in a valley, you’re also buying at a reduced price.

One way to help maximize the growth of your retirement savings and minimize losses is through your investment allocation. This is simply choosing a mix of investments that typically align with your risk tolerance and timeline: The longer you have to accumulate and grow savings, the more you may be able to tolerate risk. The opposite can be true as you’re nearing retirement, when investments have less time to recover, and you may be more focused on stability. 

If you’re unsure if your asset allocation, risk tolerance, and timeline are aligned, a financial professional can help.

Say you’ve started retirement and taken out a big chunk of savings, just as the markets enter a period of decline. You’re reducing your savings, but you’re also reducing the bucket of funds that may grow in future years. To avoid this, some retirees take out less in those early years of retirement, using other savings as necessary.

You may have also had grand plans for the first year (or two) of retirement. But jittery markets may mean a reassessment of your expenses. Adjusting both your immediate to-dos and your timeline may be a practical way to approach the start of your retirement.

Even if the markets are volatile, there’s plenty you can control if you’re nearing retirement or newly retired. Perhaps you’re able to focus on a debt to pay off, a long-term trim to your budget, or small but steady contributions to your emergency savings funds. All could pay dividends in your retirement years by helping to free up income and build up your financial cushion.

Are some retirement funds better than others during a period of market volatility? When it comes to taxes, the answer may be yes. Saving one to three years’ worth of essential living expenses in a liquid fund, such as a money market account or high-yield savings account, can help you avoid withdrawing money from long-term investment accounts while the market is down and give you more control over when and how taxable withdrawals occur. Different accounts also have different tax implications, which may help guide your retirement budgeting and withdrawal decisions. Your financial professional and tax advisor can help you strategize what makes the most sense for your situation.

The 24/7 news cycle makes it easy to get swept up in the emotional roller coaster that can come with investing. But that hyper focus on which way the markets are trending may cause you to lose sight of what you’ve been working toward all along.

A financial professional can help talk you through what’s happening in the markets and how it could affect your plans for retirement. They can help you stay focused on your long-term goals and avoid making emotional decisions during periods of market volatility.