Approaching or enjoying retirement is a meaningful life transition, especially for your finances. The shift from wealth accumulation to wealth preservation can feel both exhilarating and daunting. The stakes are high, and market volatility can throw your plan off course.

How can you protect against it? With a financial plan. Now, there’s no such thing as a perfect plan that you can set and forget. Life happens, things change, and your plan should be adjusted and updated accordingly. Market volatility can be one of those times, so here is a guide to help you navigate periods of uncertainty.

Keeping Market Volatility in Context

Market volatility is a natural part of investing. Economic shifts, geopolitical tensions, policy changes can all contribute to fluctuations in market performance. While historically the stock market has shown a tendency to recover from downturns over time, for those near or in retirement have a shorter time horizon, ultimately feeling the volatility more in the moment. For those periods, it’s essential to adopt strategies that shield your wealth from unexpected swings.

And remember that even during periods of volatility where it can feel unsettling, it’s about having the right perspective and keeping your long-term goals in mind.

The Vulnerability of Retirees

For individuals, the challenge of navigating market volatility is magnified by several factors that influence the overall success of meeting your financial needs and goals.

Greater wealth can come with higher expectations for retirement living standards, including travel and philanthropy. Protecting these aspirations requires careful financial planning to ensure your retirement lifestyle goals are realistic.

While retirement means subbing in leisure time for the office days, it means losing the coveted paycheck. That leaves retirees relying on their retirement accounts and portfolios to generate income to support the lifestyle outlined above.

Planning for retirement includes the life expectancy factor. A prolonged retirement requires a sustainable withdrawal strategy that accounts for inflation, volatility, and potential healthcare costs.

Whether you’re already retired or preparing to be, work with your financial advisor to stress test your plan. Not only does stress testing allow you to see how your plan would withstand different market scenarios, like a downturn, but it has the flexibility to adjust for changes to social security payments, premature death or unexpectedly long life, changes to healthcare costs, long-term care costs, and much more. You can tell us, what are you afraid of, and we’ll make you see real analysis on what that means for you, your plan, and your peace of mind.

How to Prepare for Retirement (and Volatility)

A comprehensive financial plan is your best defense against market volatility, if tailored to your personal retirement needs.

1. Assess your current financial situation. Start with a thorough review of your assets, liabilities, income sources, and expenses. This helps to understand your financial standing and identify areas that require adjustment.
2. Define your retirement goals. Clearly outline your retirement goals. What lifestyle do you envision? Your goals, like traveling or charitable donations, will inform the strategies you implement to achieve and protect them.
3. Know your biases. Biases and behavioral finance can influence us all, especially in times of volatility. Be honest with yourself and your advisor about these feelings so during periods of uncertainty, you can resist the urge to sell stocks and ground yourself in your plan. Instead, seek strategic flexibility by utilizing different buckets for short, medium, and long-term funds according to your goals and plan.
4. Check all the boxes. While market fluctuations are inevitable, it’s a known tradeoff of investing. Rather than avoiding markets, using the right tools can help ease the ride. Diversification can mitigate risk by spreading your investments across asset classes – stocks, bonds, and alternative investments – to reduce exposure to any single market downturn. Establishing a sustainable withdrawal strategy that balances your lifestyle needs with the longevity of your portfolio will help to have appropriate risk tolerance.
5. Consider alternative investments. Incorporate alternative investments, which are asset classes that fall outside traditional stocks and bonds. These assets can provide stability and potential returns that are less correlated with market volatility. Learn more about the characteristics of alternative investments, including the benefits and tradeoffs by watching: Beyond Stocks: Diversifying with Alternative Investments.
6. Plan for healthcare costs. You can’t think about retirement without accounting for healthcare costs, as healthcare can be one of the most significant expenses in retirement. Work with your advisor to plan for health-related expenses and explore long-term care insurance options to protect against unexpected medical costs.
7. Implement tax-efficient strategies. Manage how much you take out of taxable, tax-exempt, and qualified tax-deferred accounts – and, more importantly, when you take these distributions impact your tax bill. Strategically planning the how and when can help minimize the taxes and keep your wealth working for you for the longevity of your retirement years.

As you near retirement, protecting your wealth from market volatility is essential to achieving your long-term goals. And as we often say, control the controllables.

A comprehensive financial plan will not only safeguard your assets but also provide you with peace of mind, allowing you to enjoy your retirement without constant worry of market fluctuations. Invest time in developing a strategy that prioritizes your needs.

Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.