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The Shocking Truth About Market Volatility and Your Retirement—How to Protect Yourself Today!

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.

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