The stock market’s recent decline has raised concerns among baby boomers about their retirement portfolios. With the S&P 500 Index down nearly 8% from its February peak, many fear a potential recession could significantly impact their savings. Changes in Wall Street regulations since the 2008 financial crisis have made retirement portfolios more exposed to high-priced stocks.
As a result, the level of risk to individual investors has increased, requiring them to stay informed and prepared for volatile market conditions. Baby boomers, who hold nearly $20 trillion in the US market, are particularly vulnerable to market downturns. They have limited time to recover losses without taking steps to diversify or rebalance their portfolios.
This situation could force many to delay retirement, resume working, or cut back on spending.
Boomers face market volatility risk
President of Rosenberg Research, David Rosenberg, warned that if the market pullback continues, “many will be forced to consider menial jobs or significantly tighten their retirement spending.” This reduced spending could create a “negative feedback loop,” affecting corporate profits, job losses, and further asset price declines.
Retirement experts advise against making impulsive decisions, such as cashing out investments in a panic. Instead, they recommend maintaining a diversified portfolio, rebalancing ahead of retirement to include more bonds, and having a separate cash account to avoid selling assets when prices are low. Other strategies involve covering essential costs with guaranteed income sources like Social Security and annuities, ramping up contributions to employer-sponsored plans, building a robust emergency fund, and considering part-time jobs to increase savings and delay withdrawals.
The first five years of retirement, known as the “danger zone,” are crucial. Drawing from a diminishing account value during this period can increase the likelihood of outliving one’s savings. To mitigate this risk, experts suggest maintaining a balanced asset allocation and adopting the “bucket approach,” which involves dividing retirement savings into different categories of assets to use in varying market conditions.
As the stock market continues to slide, baby boomers must take proactive steps to protect their retirement portfolios and ensure their savings last through their golden years.
Image Credits: Photo by Max Harlynking on Unsplash
