There are significantly more challenges for retirees or those close to retirement. Paying more for gas, groceries, and other items on a fixed income while watching your investment portfolio built over a lifetime decline in value is challenging.
Bear markets are scary for investors, but they can be particularly treacherous for retirees or those about to retire. The timing of bear markets which are market downturns of 20% from their recent peak, and how long they’ll last is usually unpredictable. On average, bear markets come every 3.5 years and last 9.5 months.
Suppose you have years before you retire. In that case, you have more years to save money, and less pressure to do so, and this piece may help you recognize the necessity of starting early in life and consistently putting retirement savings away.
You want to right-size your budget for retirement by tracking and reducing spending, eliminating debt, and avoiding carrying any credit card balances. Delay making more significant purchases during high inflation and market downturns until there is more economic stability.
Asset allocation is a form of diversification in which the investor decides on the proportions of an investment portfolio that will be devoted to various asset classes, including stocks, bonds, cash equivalents (i.e., money markets), real estate, gold, and other commodities.
It’s painful to realize investment losses in a down market. However, those losses can help you reduce your taxes by offsetting your gains now or in future years. Bear markets are an excellent time to take advantage of tax loss harvesting.
Another benefit of down markets is Roth conversions. Roth IRAs have preferable benefits as you contribute after-tax dollars, your money grows tax-free, and you can make withdrawals after age 59.5 years tax-free and penalty-free compared to Traditional IRAs.