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1 Thing That Can Save Your Retirement If There's Another Stock Market Crash

By Katie Brockman – Jul 3, 2020 at 8:38AM

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Another major downturn could put your retirement at risk, but there's one thing you can do to protect yourself.

The coronavirus pandemic has wreaked havoc on the economy, and it's forced some older adults to rethink their retirement plans.

Mass layoffs slammed older workers, with nearly 4.5 million workers age 55 and older facing unemployment in May, according to the U.S. Bureau of Labor Statistics. The stock market also tanked earlier this year, leaving many soon-to-be retirees with less than they had hoped for in their retirement funds.

Man feeling stressed over a stock market crash

Image source: Getty Images.

Fortunately, the stock market has made an incredible comeback over the last few weeks. Many businesses have also started reopening, to the relief of unemployed workers. However, there are plenty of signs that the coronavirus pandemic isn't over yet, and a second wave could be on the horizon. If that happens, another stock market crash could be inevitable.

However, there's one thing you can do that can protect your finances and your retirement from another market downturn.

Protecting your retirement from a second wave

The number of new coronavirus cases decreased since its peak in April, but over the last few weeks, many cities across the country are seeing spikes in the number of new infections each day. As businesses continue to reopen and more Americans go back to work, there's a chance these numbers could skyrocket.

If COVID-19 returns with full force, businesses may have no choice but to close again and lay off more employees. Another wave of unemployment could potentially result in a second stock market crash, which could wreck your retirement plans.

While you may not be able to control the stock market or how the coronavirus pandemic unfolds, you can take steps to protect your retirement. And by building an emergency fund, you can potentially save your retirement even if the economy takes a turn for the worse.

How an emergency fund can protect your senior years

No matter your age or your financial situation, it's always good to have a robust emergency fund with enough savings to cover at least three to six months' worth of living expenses. But if you're nearing retirement age, a stash of emergency savings is crucial for a couple of reasons.

For one, an emergency fund can protect you if you're forced into retirement earlier than you'd planned. If another round of mass layoffs is looming, there's a chance you could lose your job and have to retire early even if you're not financially ready. But if you have an emergency fund, you can survive on those savings and avoid dipping into your retirement fund right away -- which will allow your investments to continue growing.

Additionally, it's best to avoid tapping your retirement fund when the stock market is in a slump. During a market downturn, stock prices are lower. And when you withdraw your savings when stocks are less valuable, you're potentially losing money on your investments.

For that reason, it's wise to leave your money alone during market downturns and wait to withdraw your cash until the stock market recovers. By using your emergency fund to pay the bills, you can leave your retirement investments alone as much as possible. Then when the market bounces back, your investments will be worth more and your retirement savings should last longer.

Building a healthy emergency fund

Establishing an emergency fund is often easier said than done, especially if money is tight right now. But because your retirement could depend on having an emergency fund, it's vital to ensure you're doing everything possible to boost your savings.

Take a look at your budget to see if there are areas where you can cut back. Every dollar counts, so even minor cutbacks can go a long way. Stash that money in a high-yield savings account to earn as much interest as possible, and try your best to save consistently. If you're fortunate enough to still have a job, try diverting a portion of every paycheck to your emergency fund.

You may need to make sacrifices elsewhere in your budget to build an emergency fund, but the peace of mind you'll have knowing you're protecting your retirement is worth it.

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