Protect Your Retirement Against A Bear Market

Over the long run, the stock market has been a historically reliable generator of wealth for generations of investors.

Over the short run, things are a lot more dicey. In fact, for investors who are relying on their investments for retirement income, a stock market crash at the wrong time can be devastating to individual financial plans.

Here is a brief list of major bear markets over the past 50 years:  

  • 1961-1962. Stocks declined 28% from Dec. 12, 1961 to June 26, 1962.
  • 1966. Stocks fell 22.2% over eight months from Feb. 9 to Oct. 7, 1966.
  • 1968-1970. The S&P 500 fell 36.1% from Nov. 29, 1968 to May 26, 1970.
  • 1973-1974. The U.S. stock market lost 48.4% between Jan. 5, 1973 and Oct. 3, 1974.
  • 1980-1982. U.S. stocks fell 27.1% between Nov. 28, 1980 and Aug. 12, 1982.
  • 1987. On Oct. 19, 1987, the U.S. stock market, as measured by the S&P 500, lost 23% of its value in a single day. This sudden decline occurred in the middle of an even larger correction from Aug. 25 to Dec. 4, 1987, when the S&P 500 fell 33.5%.
  • 2000-2002.The “dot-com bubble” saw the S&P 500 fall 49.1% between March 24, 2000 and Oct. 9, 2002.
  • 2007-2009. The “housing bubble” collapse caused the S&P 500 to lose 56.8% over 17 months, beginning Oct. 9, 2007 and bottoming on March 9, 2009.

Stocks eventually recovered from each of these collapses, but many investors who needed income in the aftermath of these crashes never recovered.  

Those in the workforce can ride out such storms and even buy more when stocks are cheap, but retirees reliant on their nest eggs for an income to live on don’t have that option. A bear market forces them to sell assets just when they’re at their cheapest, just to meet living expenses.

‘Safe money’ vehicles

As you approach retirement, consider how much risk you’re willing to take. If the thought of a 30-50% stock market crash within the next couple of years is worrying to you, it may be time to increase your allocation to “safe money” vehicles like these:

  • Fixed annuities. In their most basic form, these are just guaranteed income vehicles. You contribute premium to an insurance company; in return, the insurer guarantees you a specific income for your lifetime, or for the joint lifetimes of you and your spouse.

The insurance company will pay the income promised in the contract – no matter what the stock market does.

Many planners suggest calculating your minimum acceptable income each month or year, and then buying an annuity that will guarantee at least this income, no matter how the stock market performs.

  • Permanent life insurance. Life insurance allows your premiums to grow tax-deferred, while simultaneously providing a tax-free death benefit to your heirs. You can also use your life insurance policy’s accumulated cash value to supplement your income in retirement.
  • Cash, CDs and money markets. These are generally considered “risk-free investment vehicles. However, returns are very low and may not keep up with inflation. 

If you’re nearing retirement, or just want to be prepared for inevitable stock market volatility, call us. We can help you assess your risk exposure, calculate your expected income needs, and help protect your retirement income against the threat of a devastating stock market crash – or even against the pernicious effects of a long, slow bear market.

Don’t wait until the crash is already upon us and it’s too late to act. Call us today.

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