Retiring Into a Shaky Market? Think Long Term Anyway

Americans in their mid-60s could live nearly three more decades, research shows, so a healthy dose of stock in your portfolio is actually prudent now.

If you’re on the cusp of retirement of retirement or have just stopped working, it’s hard to tune out the stock market’s recent gyrations.

Most investors who are still saving can safely ignore the headlines, turn off the television and go on with their lives.

New retirees may feel they’re in a more precarious position. But maintaining a healthy dose of stocks still provides the best chance they won’t run out of money over what could be a three-decade period.

If your money is evenly split among stocks and bonds — which is often the case for retired people — then it already has a built-in cushion: The stock market has plunged 12 percent from its high in mid-February, but many funds tailored for retirees are down less than half of that, or roughly 4 percent. That shouldn’t set off any alarm bells or prompt any rash moves.

That’s not to say timing doesn’t matter. It does — and big losses now are the hardest to overcome for people who are in the early stages of their retirement.

During the financial crisis of 2008 and 2009, the stock market lost roughly half of its value from peak to trough. For many retirees with investments evenly balanced among stocks and bonds, that translated into a loss of more than 25 percent over that period. That kind of drop — or even a less dramatic one — may require some retirees, particularly those early in retirement, to make certain adjustments.

Here’s why: When the market delivers a punch just as you need to start withdrawing money, you’re forced to sell when your investments are down, locking in losses. Selling when your investments are down also eliminates any chance that you will benefit when the market recovers. And you’ll need to sell more shares to come up with the same amount of money you took out before the market dropped, which only accelerates a portfolio’s depletion.

“The first couple of years of retirement, those are the years where we don’t really want to suffer tremendous losses that we have to sell out of,” said Jamie Hopkins, director of retirement research at Carson Group, a wealth management firm in Omaha, Neb. “That is your biggest risk period, from an investment standpoint, when you should probably have the most conservative portfolio.”

Many — but not all — investors hew to that advice, particularly those in target-date funds, whose mix of investments gradually become more conservative as you approach a specific date. Many of the major target-date funds tailored for people retiring in 2020, for example, have roughly 50 to 55 percent of their investments in stock funds. They generally move further away from stocks as you age.