Key Takeaways: Managing Retirement Savings During Market Volatility

In today’s uncertain economic climate, it’s no surprise that retirement plan sponsors are concerned about the impact of market volatility on retirees. A recent survey by MetLife revealed that a majority of defined contribution plan sponsors are worried about the ability of those nearing retirement or already retired to handle market fluctuations. With big swings in the stock market potentially jeopardizing retirement savings, it’s crucial for retirees to have a plan in place to weather the storm.

One key takeaway from the survey is the importance of avoiding panic-selling during market volatility. According to Rob Williams, Managing Director of Financial Planning at Charles Schwab, selling off investments in a panic could mean missing out on potential gains once the market rebounds. Instead, retirees should focus on building a cushion of savings to help them avoid making hasty decisions during turbulent times.

Experts recommend that retirees have between three to five years’ worth of living expenses in cash, cash-equivalents, and short-term investments. This strategy aligns with historical market behavior, as it typically takes around three and a half years for a diversified index of stocks to recover after a downturn. By having a “war chest” of savings, retirees can feel more secure in their financial stability and avoid making rash decisions based on market fluctuations.

For those who are not yet retired, the survey found that sponsors are less concerned about participants who are more than 10 years away from retirement. This group still has time on their side to weather market volatility and benefit from lower prices in a down market. By staying focused on long-term financial goals and maintaining a diversified portfolio, younger investors can mitigate the impact of market swings on their retirement savings.

In the event of an emergency, retirees should carefully consider which assets to tap first. While some may need to dip into their investment accounts, experts recommend withdrawing interest or dividend income first. Additionally, reinvesting dividends whenever possible can help retirees build up their cash cushion over time. By periodically rebalancing their portfolios based on financial goals, retirees can ensure that their investments remain aligned with their risk tolerance and target allocation.

Overall, the key takeaway from the MetLife survey is the importance of having a solid financial plan in place to navigate market volatility during retirement. By building a cushion of savings, avoiding panic-selling, and staying focused on long-term goals, retirees can better position themselves to weather economic uncertainty and achieve financial security in their golden years.