If the Market Goes Down, Can You Still Retire on Time?

As the new year starts, many Americans are up at night, worrying about their investments and hoping the market’s volatility will subside. We’re living in uncertain times, which can hit even harder when you’re nearing retirement age. A Credit Karma survey found that 68% of Americans’ financial situations did not improve in 2022, meaning over two-thirds of Americans are the same or worse off than they were a year ago. Is it possible to retire on time if the market goes down? 

Here's The Deal– Timing The Market Doesn't Work

For better or for worse, the market is constantly fluctuating. As much as you want to control it (or at least accurately predict it), that’s only sometimes the case. 

If the market dives, how should you respond?

It's almost always better to stay the course and hold on to your investments rather than make decisions based on emotions and sell early. Because, eventually, things will come up! If you attempt to time the market, you can cut your retirement savings by half if you miss the best market days (which most commonly come after the worst days). This was proven by a JP Morgan study, which found that in 2021, seven of the best days for the market happened within two weeks of a corresponding worst day. The market can bounce around and turn in your favor within mere days– so don’t react impulsively to temporary lows. If anything, you can speak with your financial advisor about the opportunity to “buy low,” which can grow into further retirement funds once the market is restored.

The Importance of a Cash Reserve 

A substantial cash reserve is essential in helping you navigate a turbulent market. It can be tempting to withdraw from your investments to cover living expenses when the market is going down. However, this can reduce your retirement savings or withdrawal penalties and may not be the best option. Instead, it's crucial to have a cash reserve that you can rely on to cover your expenses. Unfortunately, many Americans nearing retirement are saddled with debt, which can add financial stress to a reduced retirement budget. Consider keeping cash and safer investments in multiple places:

• High-yield savings accounts for maximum liquidity

• I-Bonds for short-term holding

• Money market funds

• Treasury bills, notes, bonds, and TIPS

• Corporate bonds

• Dividend-paying stocks

It’s essential to ensure you have a good balance of high and low-risk investments, both of which are an essential part of a well-balanced, diverse portfolio. 

Focus on What You Can Control 

As much as we may want to, we can’t control the market, so focus on what you can control! Ask yourself some of these questions: 

• Can I cut back on my spending? 

• How long can my "safer" investments that haven't taken as much of a hit cover me until the market recovers? 

• How can I plan for the next time the market faces headwinds?

• What are my financial priorities in this phase of life?

If you haven’t retired yet, this allows you to beef up your accounts like your 401(k), Individual Retirement Account (IRA), Health Savings Account (HSA), or other retirement savings accounts. Work with your advisor to ensure you’re adequately prepared should the market swing south.If you’re already retired and the market goes down, it's important to remember that your retirement savings should be invested long-term. Trying to time the market by constantly moving your money around can lead to missed financial growth opportunities and unnecessary stress. Instead, focus on creating a diverse portfolio that includes a mix of different investments. 

What Goes Down, Must Come Up

The market, its nature, ebbs and flows, so it's important not to panic. The market has a history of bouncing back, and what goes down must come up. According to investing platform Acorns,  since 1900, the average recession only lasts 15 months. So, while you may feel anxious at the moment, there’s always light at the end of the tunnel. Lean on your advisor for guidance on navigating the potentially rocky market. They can help you to understand your options and to create a customized plan that works for you. By having a solid cash reserve, focusing on what you can control, and understanding what goes down must come up, you can better navigate a turbulent market and still be on track to retire on time. Want to work with an advisor to ensure that you are well-prepared? Reach out today.