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How retirees cope when their savings are at the mercy of the markets

Janet Nguyen Aug 26, 2019
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Many retirees have savings tied up in the stock market.
AleksandarNakic/Getty Images

Retirement is treating Texas resident Tim Gilligan pretty well — there’s the beautiful new house he just bought with his wife, and the golf course nearby where he gets to run every morning.  

But like many with retirement funds, a portion of his savings have at one point or another been tied to the stock market in the form of investment accounts like 401(k)s and IRAs. He’s worried that the U.S. government’s fiscal policies and trade tensions with other countries, along with the possibility of a recession, will put the market in turmoil. 

He and his wife have discussed plans for a world trip, where they’d get to visit Europe together for the very first time and hop around to some major cities, like London, for a couple of weeks. He’s just not quite ready to make that commitment now, though.

Tim Gilligan, 62, retired in May of this year. (Courtesy of Tim Gilligan)

“I’m a little apprehensive on that at this point,” Gilligan said. “I just told her we need to kind of let things settle down and play out before we really see what’s going on.”

Megan Murphy, vice president of thought leadership at Fidelity, told CNBC in March that about half of baby boomers have 401(k) plans invested in riskier allocations than Fidelity suggests for their age group. The heavy investment in stocks could leave them vulnerable in the event of a recession.

Economists and investors have been raising concerns recently about the possibility of a recession amid the ongoing U.S.-China trade war and a decline in exports, manufacturing and business investment. 

David John, a senior strategic policy advisor with the AARP Public Policy Institute, said one of the most important things you can do in a down market is: Do. Not. Panic.

“A recession is inevitable,” he said. “At some point or another, you know it’s going to happen. So you prepare for it. But you don’t panic about it.”

And that’s advice that he said stands regardless of how the economy is doing.

“Depending on what time of day you look at a news source or a financial news source, you’re either going to find yourself wildly optimistic or completely down in the dumps,” he added.

He suggests that your retirement income plan should be structured in a way that makes stocks a more incidental part of your living expenses. For payments with fixed costs (think home costs, utilities and health insurance), he said they should be covered by a combination of Social Security benefits, because they won’t change, and a financial product like an annuity, which can pay guaranteed rates of interest. 

Carolyn McClanahan, the director of financial planning at Life Planning Partners, also advises that those who are early on in their retirement — and are at the edge of not having enough money to last — should be conservatively invested in a mix of stocks and fixed income.

She said retirees should probably have no less than 50% of their savings tied to a fixed income vehicle (a form of investment that gives you fixed payments) like bonds, bond funds, and immediate fixed annuities.

McClanahan said you should create an investment policy that you’re going to stick with so that you don’t trade based on emotion when the market gets volatile.

“Make sure you revisit each year what you’re spending, whether you have enough to support your spending, and whether your asset allocation continues to reflect the amount of risk you can afford to take based on your spending needs,” she added.

Tim Gilligan said that during the Great Recession, he lost about 40% of his retirement savings. Of course, he was still working and he had time to recoup as the economy recovered and the markets bounced back.

“But if we experienced something that’s like that again, based on our fiscal policies, I’m not sure I can recover from that and still live the way I’m able to live now,” he said. 

Stefanie Woolverton, a 61-year-old retiree based in California. (Courtesy of Stefanie Woolverton)

If another recession hit, Gilligan would consider re-entering the workforce. 

The market downswings we’ve recently seen have already affected the financial decisions of Stefanie Woolverton, a 61-year-old resident from Redland, California, who retired back in 2011. 

She withdraws money from her retirement savings plan, which is invested in both stocks and bonds, once a year. But Woolverton is holding off and charging more of her purchases on her credit card. 

“I don’t want to hit the end of my life with having used up all my money,” Woolverton said. “I don’t think I shop as much as I used to — although my husband thinks I still do.”

But there are retirees like Bob Matthews who are remaining cautiously optimistic about the short-term future of the economy.

Bob Matthews is the president of an investors club based in South Carolina (Courtesy of Bob Matthews)

Mathews, the president of an investors club that meets at the Lowcountry Senior Center in Charleston, South Carolina, said that roughly more than half of his personal investments are in stocks. But as for day-to-day living expenses, he said he doesn’t see any reason to curtail spending.

He pointed out that while the Dow lost 800 points at one point this August, we recovered more than half over the next couple of days.

Like the financial experts advise, “the thing is not to panic,” he said.


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