Persistent and significant stock market swings, combined with shifting workplace structures and an outdated retirement benefit system, are profoundly impacting Americans’ ability to save and prepare for a secure retirement.
In fact, a quarter of Americans age 50 and over exhausted all of their savings during the 2008 recession, according to a recent AARP Public Policy Institute report. And, at the same time, almost one-third of older Americans said their home declined in value, meaning they could no longer count on rising home values to help fund their retirement.
In order to protect your nest egg against market volatility, experts recommend ensuring you have a balanced financial portfolio that includes conservative, low-risk products that are less impacted by stock market volatility.
“The single most important step Americans can take to mitigate risk is to diversify their portfolios,” said Jim Poolman, Executive Director of the Indexed Annuity Leadership Council.
“Sitting with a financial planner and using a retirement calculator can help you determine where you are, where you want to be and what savings vehicles can help you get there.”
While there are no surefire ways to avoid the effects of stock market instability, there are some things you can do to reduce the likelihood that you will suffer the consequences in the future, and things you can do during a market downturn.
Start saving now. Many people are focused on paying down student loans and other debt, or concentrating on more immediate goals like buying a house and children’s college funds.
However, the cost of putting off retirement savings adds up. Every six years you wait to start saving, the monthly amount you need to save to reach the same retirement income doubles.
Avoid putting all of your assets into one type of account. While contributing to an employer’s 401(k) is a terrific start, it’s often not enough. To build a solid retirement plan, don’t underestimate the importance of a balanced financial portfolio. Your level of risk should reflect your age and your retirement goals.
For example, younger savers have more time to recover from risk than those nearing retirement.
One option to provide balance to your retirement portfolio is adding a Fixed Indexed Annuity, which protects your principal and can provide a guaranteed stream of income in retirement, regardless of market ups and downs.
Create a retirement plan based on actual needs. A study by the Employee Benefit Research Institute found 39 percent of people guess how much they will need to save without actually calculating their retirement needs.
Using calculators can help determine your specific retirement income needs so that you can plan accordingly. Calculating just your living costs isn’t enough – also take into account rising healthcare costs, inflation and longer lifespans.
Monitor and adjust your savings strategy. Volatility in the stock market can affect your savings, as do your current expenses and future needs. Additionally, career changes and family situations can change how you should be saving.
Leading up to retirement, your last few years of savings will be different than when you were first starting out in your career. A good rule of thumb is to spend five minutes every five years revisiting your retirement plan to make sure your savings reflect your needs and adjust for market conditions.
Learn more about options for managing your retirement account at FIAinsights.org.