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Monitoring the Market: Investment Actions Today Can Hurt Tomorrow’s Retirement Security

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Today’s financial markets are frightening. Faced with huge swings and continued uncertainty, many of us with retirement savings are tempted to do something – anything – to stop the anxiety. But a financial crisis doesn’t end overnight. In 2008, the financial markets took 16 months to go from their high to the bottom. And then they started to recover. It took about four years, but stocks and bonds recovered all their losses – and then grew to new heights.

Those who stayed in the market ended up with more retirement savings. Here are a few thoughts to help you weather this crisis and come out stronger than before. Some ideas apply more to people who are still working, while others may be more useful for those who are retired or whose circumstances have suddenly changed. Comments on retirement savings apply to savers of all ages, but especially to those who are over 50 and have less time and flexibility to rebuild their retirement assets.

Consult an advisor. This blog is designed to help you start thinking about finances. It is not financial advice. To determine what applies to your specific circumstances, talk to your financial planner or the retirement plan administrator at work. Many financial professionals have been through past market turbulence. Their experience can help guide your specific needs. If you don’t yet have a financial advisor or just want to learn more about what to look for in a financial advisor, you can visit AARP’s resources.

Take stock of your existing savings and income. Make an inventory of all your savings and income sources. If you are retired and rely on withdrawals from your retirement account for some of your living expenses, you may want to think about changing your spending habits or source of income. Are there areas where you could spend less or rely on less volatile income sources, such as Social Security to avoid having to sell assets? This also applies if you have experienced a recent layoff and may be considering drawing upon assets to help make ends meet.

Check the details before tapping retirement savings as a last resort. While Congress made it easier to use some of your retirement savings, there may still be fees or taxes that must be paid, and a negative impact on your retirement security. Talking with your plan sponsor, employer and/or financial advisor will help you understand these risks as well as the long-term financial implications and the latest federal guidance.

Use a budget. If you don’t already have a budget, it’s worth taking the time to create one. Listing all your spending helps you identify areas where you may be able to tighten the reins during a time of economic disruption, physical distancing, and staying close to home. You may find you already spend less in certain budget categories. For instance, since dining out is no longer an option, you may be saving there. Take inventory and assess your must haves.

Avoid panic selling. Selling permanently locks in your losses and you have no opportunity to rebuild your savings once the markets start to move up – as they eventually will.

Don’t try to time the market. Moving to cash might be a way to reduce anxiety for now, but inevitably, you will miss the start of the eventual market recovery. By the time you rejoin the markets, a fair amount of the recovery will be over – and there are usually fees for buying stocks, which just add to losses.

Don’t stop saving for retirement. If you are still employed, continuing to invest when the market is way down means that you buy more shares for the same investment amount. When the market recovers, that means you will have more shares that are climbing in value, which greatly accelerates the overall recovery of your portfolio.

Remember that markets are not logical. Emotion plays a big role in short-term market movements. A lot of trading is handled by automated trading systems. Recognizing this can help you not to panic. The key is to keep focused on your long-term savings goals.

You Are Not Alone

Finally, everyone is experiencing these trying times. Regardless of your situation, you are not alone. The coronavirus is affecting people all across the world. Talk to someone if you are overwhelmed or feel like you are getting in over your head. The worst option is to avoid seeking help and waiting until the stress is unbearable.

No matter the nature of the challenge, it is much easier to work things out before an issue snowballs. If you find yourself needing extra help in these tough times, consider visiting AARP’s Local Assistance website for help identifying locally available programs provided by nonprofits, churches and governments. Depending on where you are, several categories of services are listed.

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