Last week, the S&P 500 plunged into bear market territory for the first time in a little over two years, and not surprisingly, that has a lot of people rattled. If you're decades away from retirement, you may not be so disturbed by the state of the market. But if you're only a few years away from retirement, you may be worried that current market conditions will impact your plans for the worse.
So should you change your retirement plans in light of our current bear market? That depends on what your investment portfolio looks like.
Are you set up to withstand a stock market downturn?
Older workers are typically advised to shift away from stocks and move over to safer investments, like bonds, as retirement nears. They're also advised to stockpile enough cash to cover one to two years of living costs if retirement is on the horizon. And if you followed that advice, then you may not need to change your retirement plans at all.
In the absence of a crystal ball, we don't know how long the current bear market will last. Typically, bear markets last about a year, but that may not be the case this time around. Our last bear market, which happened in the wake of the COVID-19 outbreak, was actually fairly short-lived, and we may see something similar this time around.
On the other hand, the bear market we just entered could last for more than a year. But if you're invested appropriately, that shouldn't matter.
At some point, stocks are more likely than not to recover the value they've shed. And if you have enough money in cash and bonds to cover your living expenses for several years, then you may not have to make changes to your retirement plans, even with the market being as down as it is today.
However, if your retirement savings are still heavily invested in stocks, and you don't have much cash at your disposal, then you may need to consider postponing retirement until the stock market recovers. Once that happens, you can do some shifting in your portfolio to protect yourself from a subsequent downturn.
Hope to cope with a delayed retirement
Delaying retirement may not be ideal. But it could save you from locking in losses and falling short on income as a result.
The upside of postponing retirement, however, is getting to sock some more money away in your IRA or 401(k) plan. Plus, working longer could make it possible to delay your Social Security filing. That could result in a more generous monthly benefit -- and more financial freedom once you do retire.
Don't be so quick to write off your plans
Today's bear market has the potential to upend some retirement plans -- but it doesn't necessarily have to impact yours. If you have the right asset allocation, you may be more than able to move forward with near-term retirement plans. And if not, you have an opportunity to learn from your current situation and take steps to set yourself up with more income for your senior years.