5 Steps To Prep Your Retirement Savings For The Next Market Crash

One day you appear to be on track for retirement, and the next day the stock market crashes. You were on track for a comfortable retirement at age 67 – or before, with a little luck. Now you may have to work into your 70s before you can afford to retire.

Don’t let this happen to you. You can’t stop the market from crashing, but you can limit the damage by following these five steps.

1. Make Conservative Estimates – Proper retirement planning centers on a budget and reasonable estimates of income and expenses. Estimate your retirement living expenses. Find out your estimated Social Security benefits by signing up for a My Social Security account with the Social Security Administration. The difference between costs and Social Security benefits is the gap you must fill with retirement savings.

Once you have income and expenses estimated, pad those estimates. Raise your assumed expenses by 5% – 10% and cut your income estimates by the same amount, and then recalculate your required nest egg. By setting conservative goals, you establish a cushion that can buffer the effect of a crash.

2. Manage Your Stocks/Bonds Ratio – In the early years, it’s best to keep a larger portion of your portfolio in higher return/higher risk stocks. You can recover from a crash then. Consequences are more severe as you approach retirement.

As you age, shift your portfolio toward bonds, cash, or other lower risk/lower return investments to limit the effect of a downturn. The percentage should be based on your overall tolerance for risk and whether your nest egg is sufficient or questionable.

3. Keep Debt Low – It’s hard to manage cash flow through a downturn when you have significant debt – especially high-interest credit card debt. As a rule, try not to charge any more on credit cards than you can afford to pay at the end of the month – and if you do carry a balance, pay off the balance as soon as possible.

4. Have an Income Plan B – Think about other sources of income that could be used in case of emergency. Do you have assets that you could sell or tap, such as a reverse mortgage on your home? Do you have skills that could be translated into a part-time job or consulting gig?

5. Review Your Expenses – As with your income, think of which retirement expenses could be cut back with the least pain. Maybe you can’t meet all your retirement goals but focus on the ones that are the most important to you. We suggest making several levels of contingency plan – consider nest egg losses of 10%, 25%, and 50%.

If the market does crash during retirement or as you enter it, don’t panic. The market always recovers and eventually surpasses its previous mark. By shifting all your money to low-risk investments – or pulling out of the market entirely – you’ll miss out on the recovery and settle for a smaller total retirement fund.

Once the market bottoms out, shift your portfolio a bit more toward stocks – within your tolerance for risk, which may be shaky after losing a large chunk of your retirement funds. If you’re already retired, shift your monthly withdrawals down for a bit and cut your expenses to match.

Within a few years, you can return to your normal withdrawal rates and restore your original retirement plans. You can say that you rode out the economic storm better than most – because you planned well and skillfully executed your plan.

Read More

Join our newsletter

If you like Critical Financial, subscribe and get our latest content via email.

Powered by ConvertKit

Share this post:

Recent Posts

Leave a Comment

*

May the 4th Be with You: Star Wars Swag on Amazon

May the 4th Be With You: Star Wars Day Swag

It began as the punniest holiday ever but quickly grew into an earnest (if somewhat random) celebration of the long-running (and still... more →
People count the money to buy a house in future success.

Avoiding Mortgage Scams: Don’t Fall for Unreasonable Promises

If it sounds too good to be true, it probably is. That’s sound advice for almost all aspects of life, including the search for... more →
Eat for free for a whole month via the meal kit companies discounts for new customers.

How To Get a Month of Free Food: 9 Meal Kit Companies Offering Discounts to New Customers

Play your cards right and you might be able to line up a month’s worth of free meals if you were to try out all nine of the meal... more →
Generate extra cashflow -- here are 97 ways.

96 Awesome Ways to Generate Extra Cashflow

Who doesn’t want more money nowadays? We’ve got you covered on that front. Here comes a long list of different ideas on... more →
Valentine's Day gifts that won't destroy your budget

Valentine’s Day Crafts Are Romantic Rescue from Crazy Inflation

Fall for the hype this week and you’re out an average of $143.56 for Valentine’s Day. Crafts and other do-it-yourself tactics... more →

Ultimate Guide to Bitcoin — FREE Ebook!

Have we got something for you: a free ebook about bitcoin! more →
Get a flu vaccine.

Why You Need To Get a Flu Vaccine Right Now

Flu vaccines aren’t just for the elderly  anymore. Here are 25 reasons you should go get vaccinated. more →
Financially successful

Acquire the Trait All Financially Successful People Have

Financially successful people tend to all have a lot of self-discipline. Improving your discipline in one area of your life often spills... more →

What’s the Best Free Recipe App?

The Apple Store and Google Play together offer more digital cookbooks than you probably have room for on your mobile device. So which... more →
New tax law might slow down housing market.

What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest... more →

4 in 5 Households Will Get a Tax Cut in 2018

Four out of five U.S. households will get a tax cut as a result of the legislation that President Donald Trump signed into law today. more →
Will bitcoin reach $100,000?

When Will Bitcoin Reach $100,000?

Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch... more →
The Dow Jones topped 24,000 -- now what?

The Dow Jones Crossed the 24,000 Threshold. Now What?

Stocks appear to be increasing in volatility, yet the markets closed on Monday, December 4 with the Dow Jones Industrial Average is... more →
Peer mortgage

Should You Get a Peer-to-Peer Mortgage?

If you can’t get approved for a home loan from a bank, you might want to look into applying for a peer-to-peer mortgage. more →
Investment gifting is awesome.

4 Things To Know Before You Donate an Investment

While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things... more →
Are you wondering: What's the Relationship Between the Stock Market and Federal Debt?

What’s the Relationship Between the Stock Market and Federal Debt?

Wouldn’t it be wonderful if gains in the stock market could actually reduce U.S. government indebtedness? If that were true,... more →
Calculate your net worth

How To Calculate Your Net Worth

This passage on how to calculate your net worth is an excerpt from Personal Finance in Your 20s and 30s for Dummies, by Eric Tyson,... more →