How do I protect my retirement savings during market volatility?

August 17, 2023 | David Edmisten, CFP®

How do I protect my retirement savings during market volatility?

Other than taxes, one of a retiree's biggest concerns is not losing their hard-earned savings during a stock market decline. For those retiring early, there are less years to save and more years to use one's nest egg, making it even more imperative to have an investment strategy that helps grow AND protect your savings.

Too many investors set their investment plan to depend on the market only going up to be successful. But this approach is unrealistic. To enjoy the benefits of long-term appreciation that risk assets like stocks and real estate provide, an investor must be willing to stay invested during the inevitable downturns as well.

But as one considers entering retirement, the focus of their investment strategy must change. The strategy that got you to retirement is not likely the same one that will provide for your needs through retirement.

Investing for long term growth is an important component even in retirement, to help keep pace with or exceed inflation over time. But a retiree now has to also ensure adequate spending cash, income producing investments for their retirement paycheck, and methods to make sure money is available for yearly spending, even if the stock market is having a down year.

Thankfully, a well-crafted investment strategy specifically for retirement is not difficult to develop and implement. A confident retirement investment plan will include specific amounts for cash spending and emergency reserves, income production, volatility reduction and significant amounts for long term growth. 

This approach is generally more specific and precise than the typical investment portfolio developed by most advisors and investment software. 

Rather than simply asking a few questions about your time horizon and risk tolerance and then providing a retiree with a model allocation that is the same for everyone, a customized plan based on your spending needs and goals can provide much more specific guidance for your investments. 

By designating the timing and purpose of each group of assets in the correct amounts, an early retiree can enter retirement confident that they can live and spend without relying on the day-to-day movements of the stock market to define their success.

Working with your financial advisor, a well-crafted retirement investment strategy can help you to enjoy retirement and not spend your time worrying about the stock market. 

You should have a plan that provides for and protects several years' worth of spending.   Your plan should already define the changes that need to be made in a stock market decline, before that decline comes. This type of approach will allow an early retiree to remain confident that they can meet their goals and not get caught up in the unsettling emotions that often accompany a stock market decline. 

While others may worry, an early retiree with this approach can continue to enjoy their retirement, knowing they have a plan that allows them to continue to spend each year and allows their portfolio time to recover from the stock market declines when they occur.

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About the Author:

David Edmisten, CFP®, is the Founder of Next Phase Financial Planning, LLC, a financial advisor in Prescott, AZ. Next Phase Financial Planning provides retirement, investment and tax planning that helps corporate employees retire with both financial and lifestyle security.