Dear Penny,“What is going to happen to retirement accounts in this falling stock market? I’m not living on them now, but I recently retired from teaching and had been squirreling away funds for my advanced years. It’s frightening to think about, but what now?”
The truth is that nobody knows. Sure, we’ve survived downturns before. They’ve been painful and scary. But retirement portfolios have bounced back. In all likelihood, that’s what will happen this time.
Yet we’ve also never seen a situation like coronavirus in our lifetimes. No one really knows how deep the pain can get or how recovery starts to happen when we’re all being told not to leave our homes for the foreseeable future.
That uncertainty is less of a problem for people who have decades left until retirement, but it’s especially scary for people like you, whose working years are behind them.
So let’s acknowledge what we don’t know. We have to work with the information we do have about what happened to retirement accounts in past bear markets, even though the situation we’re in is unique in so many ways.
I reached out to several financial advisers about the best course of action for retirees dealing with the market fallout. Note that what they told me is general financial advice. You should always consult with a pro before making major financial decisions.
The most important piece of advice is the part that’s hardest to follow, and it applies to retirees and working-age people alike: Do not panic and sell off major assets right now.
“One of the worst things a retiree could do in this situation is to sell the stocks after they’ve decreased so much in price,” said Andy Panko, a certified financial planner who owns Tenon Financial LLC in Iselin, New Jersey. “Selling stocks at the current low prices will lock in those losses and leave retirees with less shares left to rebound when the economy and stock prices eventually turn around. This will permanently reduce a retiree’s wealth.”
One good thing about your situation is that you aren’t living off your retirement accounts right now. The longer you can avoid making withdrawals, the better. That gives more of your money time to rebound.
If you have enough non-retirement savings to live off of in the short term, using that money for your expenses is ideal.
Alternatively, if you have cash value in a life insurance policy or access to a line of credit, these could help you meet your needs in times of temporary market stress, according to Colin B. Exelby, a CFP® and president/founder of Celestial Wealth Management.
“This provides relief and time for those risk assets to potentially recover,” Exelby said. “The key is, assuming they do that, you then pay back the credit line or permanent insurance policy as the risk assets recover.”
But if you don’t have access to a lot of cash and need to start withdrawals sooner, try to withdraw the absolute minimum you need to stay afloat so you have more money invested whenever recovery starts to happen.
Getting your mix of assets right when you’re retired or approaching retirement is also essential because you’re kind of at a Catch-22: You want lower-risk investments, but they still need to have enough risk to earn a decent amount. Otherwise, you risk chipping away at your principal balances and outliving your retirement savings.
This is important enough that it’s worth the cost of working with a financial planner, even if it’s just for the short term.
You don’t say how old you are, but if you haven’t started taking Social Security benefits yet and are eligible to do so, this should be part of the discussion. In an ideal world, you’d wait as long as possible to start taking benefits to get the maximum monthly payment.
But that’s in an ideal world — as in, one without coronavirus. In the real world, you have to use the resources that are available. So taking Social Security early to avoid selling investments at bottom prices may be something to consider.
These are scary times for everyone right now. The fact that many of us are dealing with this in relative isolation makes it that much harder not to dwell on the uncertainty.
If you’re constantly monitoring your retirement accounts… stop it! Log out of your accounts and try FaceTiming with a friend or family member instead.
Just talking about your fears can provide some relief. We’re all experiencing this together — even if we are in quarantine.
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your tricky money questions to AskPenny@thepennyhoarder.com.