The Shocking Truth:- MetLife survey indicates retirement plan sponsors worry about retirees’ ability to handle market volatility, suggesting short-term investments and cash savings to minimize risk.
Understanding the Impact of Stock Market Volatility on Retirement Savings
Retirement Savings and Stock Market Volatility
- MetLife survey shows 70% of defined contribution plan sponsors worry about participants’ ability to weather market volatility.
- 61% worry about participants who are already retired.
- 2022 saw negative returns in the stock market, urging caution against panic and sell-offs.
- Selling off could lead to missed investment gains post-market recovery.
Avoiding Financial Panic: The Role of a Robust Savings Cushion
Retirement Savings to Avoid Panic
- Experts suggest retirees have three to five years’ worth of living expenses in cash, cash-equivalents, and short-term investments to prevent a panic sell-off.
- This aligns with the stock market’s recovery time, which typically takes three and a half years post-downturn.
- Taylor Schulte, founder of Define Financial, suggests a “war chest” of cash and bonds to fund living expenses for two to five years.
- Retirees should set aside a year’s worth of expenses in cash or cash-equivalents for immediate needs.
- Short-term investments should include short-term bonds, mutual funds, exchange traded funds, or CD ladders.
Smart Choices: Which Assets to Utilize First During Tough Times
Emergency Asset Repositioning for Retirees
- Williams suggests withdrawing interest or dividend income first for retirees without short-term savings.
- Schulte suggests reinvesting dividends and building a cash cushion over time.
- For example, selling off investments every quarter until the desired amount of cash and short-term savings is achieved.
- Both Williams and Schulte encourage periodic portfolio rebalance based on financial goals.
- Market volatility can guide asset repositioning, with stock market fluctuations influencing asset purchases and bond purchases.