Experts are divided on what lies ahead for the U.S. economy with the Federal Reserve poised to start cutting interest rates. While some fear a broad decline or recession, others hope for a “soft landing.” For people in or near retirement, the stakes are particularly high, as a downturn could impact their nest egg or planned retirement date. Planning for potential scenarios and having a backup plan is crucial in such uncertain times. Research shows that near-retirees are more likely to panic during a downturn, so being proactive now is important.
Market declines can pose a sequence of returns risk for retirees and near-retirees, where poor investment returns impact how long savings may last. It’s essential to be prepared for sudden hits to the markets and retirement savings, as a recession may not necessarily coincide with significant stock market declines. Following rules of thumb to gauge equity allocation can be helpful, but it’s essential to consider individual financial situations and risk tolerance. Having a cash buffer and investing in government bonds can help mitigate losses during market declines.
Having sources of guaranteed income in retirement can help reduce the impact of market fluctuations on a portfolio. Delaying Social Security benefits until full retirement age can maximize monthly checks, and waiting even longer can further increase benefits. Investing in annuities can provide additional monthly income streams in exchange for an upfront lump sum payment. Higher interest rates may result in better payouts for annuities, making it advantageous to consider purchasing them sooner rather than later.
Addressing income sources and asset allocation can help retirees and near-retirees navigate potential market declines and economic downturns. Being proactive in reviewing and adjusting retirement plans can provide a sense of security and peace of mind during uncertain times. Seeking guidance from financial professionals and staying informed about economic trends can aid in making sound financial decisions. With the right strategies in place, individuals can better prepare for unforeseen challenges in retirement and ensure a more stable financial future.
