Six Ways to Live Through a Volatile Market as a Retiree

Debbie Loper |

1. Check your cash. 

At a time when the market is down, cash can be a very good thing. Consider using the cash allocation in your accounts for withdrawals in order to delay the need to sell when the market is down. Selling in a downturn could provide you with less investments when a recovery does come. So, a short term downturn could lead to a permanent decrease in your income stream. Using the cash could benefit you allowing the stocks to recover.

2. Ensure essential expenses are covered.

Utilize your guaranteed money such as Social Security, annuities or pensions for your essential expenses, such as housing, food, etc. By doing this, your investments can be used for the non-essentials, such as travel, entertainment, etc. This could provide the flexibility to cut back on spending from your investment accounts in a down market. 

3. How is your withdrawal rate?

Financial professionals often suggest limiting the amount of withdrawals from investment accounts to 4%-6% per year (factor in inflation) so that you are shielded from running out of money prematurely. If you are an extra cautious investor/retiree, you might not consider the inflation factor or reduce the amount you withdraw. But then again, most withdrawal plans should be built to weather most downturns, so these considerations may not be needed.

4. Check your alternative income sources.

Some retirees have considered alternative income sources in extended downturns, such as part-time jobs, selling unused possessions or renting out a vacation home. Typically, these options prove to be short-term once the markets have returned.

5. It’s important to closely review investment income.

Have you ever wondered which part of your investment portfolio to sell first? The tax impact is very important. Normally, it’s better to withdraw from taxable accounts first, to allow the tax deferred accounts to continue to grow. Some retirees consider generating income from dividends or interests instead of selling shares. This should protect the principal, which will assist in benefiting from a market recovery.    Also, if you are spending down assets in a down market, check the allocation. If your allocation has moved towards bonds in the downturn, sell the bonds first, allowing the stocks to recover in a market recovery.

6. Market volatility is here to stay.

The market will go up and the market will go down. So, have a plan in place that will assist you in protecting your investments to recover with the market and take care of your essential expenses. This will assist you in making sure your savings will last and this can result in easing your mind in the most volatile of markets.