A significant market downturn is worrying for any investor, but for retirees and near-retirees, a bear market is extremely unsettling. A financial crisis can substantially reduce retirement savings or even wipe them out in worst-case scenarios. However, there are things savers can do to mitigate losses and make the most of their income during and before retirement.
Market Downturn Investment Tips
The coronavirus pandemic financial crisis has dramatically changed the investment landscape and the global outlook. The impact has devastated economies around the world, stock prices have plunged, interest rates have fallen, and many investors have seen their assets shrink dramatically.
When stocks tumble, and portfolios take a battering, there is hope knowing that there are still some dependable savings and investment strategies. Here are some ideas to outsmart the market downturn.
Maximize Social Security
Social Security is a crucial source of income for nine out of ten Americans over the age of 65. The SSA estimate that 21% of married seniors and 45% of single seniors rely on Social Security benefits for more than 90% of their retirement income.
“Social Security benefits are realized by your employment history and age you started and stopped work. Working for at least 35 years is the best strategy to boost your gains. Earnings of up to $132,900 (2019) are used to calculate benefits, and working to full retirement age will ensure income is not reduced. In fact, if you wait until 70 to claim, you’ll get an increase in benefits”.
Some experts are worried that the massive amount of job losses caused by the pandemic could reduce the future Social Security “pot,” meaning what we know now, may change in the future.
While other investments, such as stock dividends, are risky to varying extents, Social Security does not go down. It is reviewed each year, and depending on the economy, the amount is either increased or remains static. As the coronavirus pandemic has lowered inflation rates, COLA is unlikely to take effect for 2021, but retirees at least won’t see a decline in Social Security income.
Having said that, the Coronavirus Aid Relief and Economic Security Act or CARES Act has provided a $1,200 one-off payment for qualified individuals. ($2,400 for joint filers. This equates to an average 7.2% annual raise for 2020.
Beneficiaries may also see more stimulus payments this year to help combat the market downturn, but how this equates to retirees is yet to be known.
Existing Social Security beneficiaries should take advantage of these benefits, and for those waiting to claim, the best advice is to seek some professional advice as to when the best time is to claim.
The CARES Act suspended the RMD payment for this year. Those in their early 70’s must usually withdraw a minimum amount each year that the government taxes. However, this year there is some relief.
Those who already took their RMD this year may be able to put the money back into their retirement account. Under IRS law, a withdrawal can be rolled over to another retirement account or the original account within 60 days without tax consequences.
If you have passed the 60-day deadline, the CARES Act also stipulates that premature RMD takers can reverse their decision.
To outsmart the market downturn, take advantage of all benefits; If you don’t need the money to live off, consider putting it back into your retirement account, particularly if the money pushes you into a higher tax bracket and effects Medicare premiums.
Review Your Portfolio
Realign your strategy to try and minimize losses from the market downturn. Whether you’re a self-investor or have an account manager, don’t delay in rebalancing your portfolio to maximize assets. Don’t panic-withdraw your money, but at the same time, look at the best industries to invest in for the future.
Ensure you have a diverse mix of accounts so you can ride out any corrections. Your income needs may determine how you do this but plan for a few years of cash, emergency savings, short and long term savings, and stocks for several years or longer.
Seek Advice from a Qualified Advisor
The best advice is to do your research and seek professional guidance. Although many retirees or near-retirees have financial anxiety about outliving their savings and income, they are reluctant to consult a financial planner.
Do this to make sure your savings, investment, and Social Security strategies make sense and are tied together with other assets and your partner’s strategies. If you have concerns, seek out more than one opinion and check out advisors’ reviews and authenticity.
An advisor may be able to help you release more income and reduce taxes through a variety of sources.
Fixed Annuities – buyers, can pay lump sums into an insurance policy in return for monthly payments that can last a lifetime.
Reverse Mortgage – those over the age of 62 can release equity from their home through a lump sum or monthly payments, which don’t need to be repaid until the home is sold or the owner passes away. With such low-interest rates, this could be an option for those who need more income.
Lump sums can also free up the need to cash in other investments resulting in a better return in the long term.
Based on the information provided, do you think you could save money and outsmart the market downturn? Please tell us in the comments section below.