After all, retirees largely live on their retirement assets, and to see the U.S. stock market lose almost 10% of its value has to be disconcerting for Americans in their post-career years.
"Volatility can be emotional and come with real challenges for retirees," notes John Sweeney, executive vice president of retirement and investing strategies at Fidelity. "The key is to prepare your income strategy, and, if necessary, revisit your withdrawal plan and/or adapt your spending."
Noting that stock market volatility is historically a normal component to investing, investment professionals say the best move for retirees anxious about their retirement savings is to be forward thinking and have a strong retirement plan in place that can withstand negative market performance.
Having a little patience goes a long way, too.
"Uncertainty is a defining characteristic in the stock market; just because it's down one day does not mean it'll be the same way the next day or even minute," says Liz Miller, president of New York City-based Summit Place Financial Advisors. Miller says that investing in the stock market is a long-term strategy to grow your savings and fund long-term goals. "There is risk in any market investment, and you can always lose money," she says. "However, overall market gyrations are not usually the reason investors lose money in the long-term. If you stick to a thoughtful disciplined investment strategy throughout turbulent times, your investments can still reach all your goals if you have a long enough time on the horizon."
To help get you through periods of market volatility, Miller advises reviewing your market history, focusing on long-term investment fundamentals and taking advantage of potential opportunities to buy good stocks at a relatively low price. "Do nothing and let your investments ride out, and even purchase more of a company you've been interested in while the price is low," Miller says.
Another good piece of advice - don't panic and sell out when so many stocks and funds are turning downward, performance-wise. "If a retiree's portfolio is not properly hedged against the volatility, it may be time to reconsider the long-term strategy," says Trevor Ewen, founder of the personal finance blog Pearoftheweek.com. "One of the worst things you can do is sell off the losers and take a huge loss out of fear. Instead, it's time to create a long-term plan, and set a five-to-ten year target to get there."
In the course of those five years, retirees should be occupied by selling off the eventual winners that are too volatile and immediately converting those to better income producing assets, Ewen says.
In the short-term, make lifestyle changes that allow you to take less cash out of your retirement accounts. "Depending on your age, it could mean taking on some part time work," he adds. "Additionally, you can downsize your home, your cost of living or other high-cost items that have been present in your lifestyle."
Lynn Ballou, a certified financial planner at Ballou Plum Wealth Advisors in Lafayette, Calif., says retirees should keep their eyes on the prize when markets get choppy. "When you design your portfolios, know your cash needs for short-, mid- and long-term periods of time and invest accordingly," Ballou says. "It's always possible you'll need money when markets are down and you won't want to incur losses to provide your monthly income. Think through your holdings so that you can handle that possibility."
Remember, too, that markets will rise again, and when they do, act accordingly. "Smart investors should use the experience as a reminder to sell high," she says. "It's often easy to know when to buy and much harder to know when to sell. Remind yourself to employ a sell strategy when markets recover. Don't fall in love with your gains. They can't feed you later in life if they exist only on paper just to disappear when you need them most during the next round of market uncertainty."
Turbulent markets are a fact of life for retirement investors, and it's tough to run into a burning building when others are rushing out. But if you're relying on retirement funds to feed you during your golden years, don't panic. Good times come and go, and the best way to get through the tough times is to plan ahead, invest wisely and take advantage of lower-priced markets to add good value to your portfolio.