The bear market offers new investors the opportunity to enter the stock market with a discount. It can sometimes be stressful, but the results can be fruitful.
However, for retirees and employees who are approaching retirement and do not have time to make up for all their losses, the calculation is not so rosy.
Financial planners usually advise their clients not to invest the money they will need for the next five years into higher risk assets, such as stocks. Instead, it’s better to keep it in safer shelters like cash. This gives you a little breath, especially when there is a period of financial uncertainty or a big downturn in the market, as we saw last month. This advice is easy to give, but much harder to follow when stock markets continue to rise, as they have in recent years.
In addition, many retirees who need to receive the required minimum distributions (RMD) of 401 (k) or individual retirement accounts (IRAs) do not have many options for scheduling anyway. So what should these investors do as they watch their nest eggs being beaten after being beaten?
Unfortunately, there is no way back into the days of the uptrend – at least not in the near future. And since bear markets are relatively common, there’s a good chance it’s not the last retiree or quasi-retiree to navigate.
Avoiding distribution at all, if possible, or delaying your RMD until later this year is the best course of action right now. But if you rely on your investment income to cover your daily expenses, you may have to make some difficult decisions about your expenses.
“Retirees need to know how they are investing today and which parts of their portfolios are most prone to these reductions,” says Jake Eischens, certified financial planner (CFP) and RMB Capital estate consultant. “No one can control market performance, but retirees can control their spending. It is a good practice to review future spending in conjunction with your portfolio to determine if there is a need for changes in spending, investment or even two.”
Given the falling market and record inflation, focusing on spending is particularly important, advisers say. This is a good time to postpone any major, unnecessary purchases.
Another option is to convert some funds into accounts such as a traditional IRA in Roth, says David Rosenstock, CFP and director of Wharton Wealth Planning. There will be an advance tax this year, but it would be lower than if the shares had higher prices, and then the investment would increase tax-free (assuming you meet the other distribution requirements). A tax expert can help you understand if this strategy makes sense and how to implement it.
“It’s important that you do not let the advance tax prevent you from transferring your retirement funds from tax-deductible accounts to tax-free accounts,” says Rosenstrock. “The point is not to be short-sighted at the expense of the blow with large tax payments on pensions.”
Finally, and perhaps least popular, Rosenstrock says a bear market can mean working a little harder than expected – or joining the Great “Unretirement”. A full quarter of workers are already postponing their retirement due to inflation, according to a recent report by BMO Harris Bank.
This is a difficult decision to make, of course, but it could help you overcome the current market volatility. Another benefit: Delaying retirement — by age 70, if possible — can also boost your Social Security benefits.
“Working beyond the traditional retirement age, whether part-time or full-time, is a great way to increase and supplement your retirement income,” he says. “Delaying retirement can have a significant impact on retirement finances, giving your existing retirement savings more time to grow and shortening the retirement period you will need to pay.”
This story was originally featured on Fortune.com