5 Ways to Protect Your Retirement Savings from a Downturn

Mar 15, 2022 2 min read

Planning for retirement can be stressful; you work for decades, saving for everything you’ve been dreaming of. But market volatility can derail your plans. Market downturns can happen at any time, impacting the average 401(k) return and wreaking havoc on your carefully laid plans. While there is always a level of risk in investing, here are some things you can do to help protect your retirement funds. 

1. Review Your Investment Strategy

The foundation of your investing plan should be based on a combination of your goals, timeline and risk tolerance. Current market factors shouldn’t play into it, and you shouldn’t make big changes based on the market’s performance. However, you may be surprised by your emotions when the market starts to fluctuate; your perceived risk tolerance may not accurately reflect how you actually feel. You may also see the asset allocation in your portfolio start to change when the markets are unstable. The first thing to do to protect your 401(k) from a downturn is to rebalance your portfolio so you can be sure that your portfolio accurately reflects your goals. If that doesn’t take you where you want to be, you may want to consider changing your investment strategy moving forward.

2. Keep Cash on Hand

Watching the values of your stocks and bonds drop isn’t easy, but seeing retirement rates of return fluctuate becomes much less stressful when you aren’t relying on those returns for living expenses in the next few years. You should always have an emergency fund that you can get to easily for anything that comes up, such as a car repair or unexpected medical expense. You should also have some short-term investment options that are a little less liquid than an emergency fund but more liquid (and less volatile) than your investment portfolio so you aren’t stuck pulling out of the market and turning a paper loss into a real loss.

Keeping cash on hand means you can ride out the market volatility – and maybe even take advantage of the downturn to invest more while prices are low. 

3. Be Strategic with Your Withdrawals

Unless you plan to go back to work, the money you retire with is the money you have to live on. Work with a financial advisor to determine a sustainable withdrawal rate that will allow you to balance enjoying your retirement with saving enough for later years. Some good rules of thumb are:

  • Avoid penalties by waiting until at least 59½ to make withdrawals
  • Plan to spend only 3-5% of your savings in the first year then adjust for inflation for future years

4. Manage Your Spending

It’s easy to go a little crazy when you first retire. You suddenly have all this time to do the leisure activities you’ve always wanted to you – you may travel, pick up hobbies or spend more on entertainment. While budgeting may look a little different, managing your retirement expenses is perhaps even more important than sticking to your budget during your working years since it will be harder to refill your account.

Keep in mind that you will likely need additional money for healthcare expenses in your later retirement years. Healthcare costs for retirees have hit an all-time high - a 65-year-old couple retiring this year will need $315,000 saved just for health-care costs in retirement. *

5. Avoid Emotion-Based Decisions

When the market starts looking like a roller coaster, it’s easy to start panicking and making changes that you weren’t planning on. Avoid emotional investing – your plan was created for a reason. You shouldn’t veer off course just because of a speed bump. Stick to your plan and keep in mind that despite regular downturns, the market has always rebounded. 

Get Professional Help 

Start working with a Farm Bureau financial advisor to ensure that you are ready to weather whatever storm may come your way.

* Fidelity Investment’s annual Retiree Health Care Cost Estimate

Want to learn more?

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