Stock market crashes can impact retirees.
Depending on your age, you have likely lived through one or more of the big stock market crashes.
Most people remember the 2008 crash.
Although this was a significant blow to many, the 1987 crash was actually the worst one in America stock market history.
According to a recent Market Watch article titled “What are the odds the market will crash during your retirement years?,” market crashes can be expected to continue occurring.
With this in mind, how will your retirement be impacted by the next crash?
What if you are retiring and need your money to last 30 years?
How will a crash impact your finances?
This depends on a few factors.
The first is the extent of the crash.
There is a 67 percent chance of a daily drop of 15 percent happening in a 30 year time.
This would be a more significant crash.
Although there is no guarantee this level of drop will occur, experts estimate that you will experience around 18 drops of five percent or more in your retirement years.
You should be prepared for these stock market crashes.
This leads to the second factor.
What is this?
The second factor is the structure of your portfolio.
Retirement portfolios are a mixture of stocks, bonds, and cash.
Cash involves no investment and will not keep up with inflation.
Stocks are the most volatile of the three.
They provide the greatest growth, but also the highest risk.
Bonds fall somewhere in between these two extremes.
Typically, it is best to have a more aggressive portfolio early in your career and a less aggressive portfolio closer to retirement.
This will help protect you from more severe losses when you have more to lose.
What can you do if the stock market crashes during your retirement?
First, do not panic.
Many people instinctively switch all of their investments to cash.
This is not a great idea.
If you planned to protect your money in retirement, you will minimize the impact.
Adjust your risk aversion to meet your current and future needs.
Working with an experienced and trustworthy financial advisor will help address the issue wisely.
Reference: Market Watch (October 31, 2019) “What are the odds the market will crash during your retirement years?”