Do you really think our economy is stable enough to keep your retirement fund secure? Guess again.
Last August 24, 2015, investors all over the country probably had a scary moment when the US stocks indices took a 4% dip. According to an article published on Reuters.com, the industrial average of Dow Jones went down by more than 1,000 points. This drop was said to be in reaction to the 8.5% slump that happened to the markets in China. This sparked a selloff in global stocks as investors tried to keep their money from being affected by this market change. As China’s economy is showing signs of a potential struggle, investors are scared of the repercussions that it will bring to their investments. In particular, Americans are concerned about the effects of this market change to their personal retirement fund.
When there is a sign that the market will collapse (e.g. stocks losing value), investors will react by selling their stocks. They want to unload to convert their cash with the intention of heading off losses. If you lose too much investment, your retirement money may retire before you. Nobody wants that to happen – especially when you are old and sick and unable to find a new source of income to support your needs.
At the moment, experts are trying to pacify investors to hold off selling their stocks. If you think that your retirement investment is in danger, you do not have to worry. It will go up and we are not on the brink of another economic slump. In fact, some companies are already recovering from the momentary slump that happened. Investors are encouraged to be logical instead of emotional when they are investing – especially when their investments are directly affecting their retirement fund.
What to do when the market crashes around your retirement money
A separate article published on CNN.com revealed that a lot of Americans checked on their investment after hearing the news that there was a 1,000 point plunge in the stock market. While this sent a lot of people to panic, they are encouraged not to sell and to hold on to their savings. The article explained that a retirement fund is a long term investment. You do not withdraw after a drop in stock values. You need to ride out these plunges and believe that when you started with will still grow once you reach your retirement age.
Of course, that does not mean you should not do something. You should not panic but you still need to think about your backup plan for your retirement money. Although the market turmoil in China will not lead to another recession, you need to know how to protect your investment against another slump like what happened early this week. It is no joke to leave your retirement fund to chance. You need to actively keep an eye out on your investments. That way, you will not panic and fear for any of your investments.
Here are some tips that you can follow to help you ride out these market plunges.
- Do not withdraw. When the stocks are falling, you need to restrain yourself from withdrawing your investment. Do not give in to the fear that the value of your investments will never recover. While there is that risk, the chances are, the stocks will be valuable again. If you look back in history, you will notice that stocks really go up and down. If you are using this to grow your retirement fund, you need to ride out the plunges. According to the CNN article, those who did not withdraw their stocks after the 2008 crash were better off now compared to those who withdrew their money. Give your investment time to recover. That does not mean you need to ignore the market trends. Once you find out that it is going down, be alert, but do not withdraw immediately.
- Transfer to less risky investments. When you notice that your investments are growing well and have profited enough, you may want to transfer them to less risky investments. That way, even if the market crashes, you will not suffer much loss. It is ideal that you put your retirement fund in different baskets. That way, if one falls, you have other investments still earning. Your options for low risk investments include certificates of deposits, bonds, money market funds, treasury bills, dividend paying stocks and the traditional savings account.
- Buy real estate properties. Another way you can secure your investment is to put it in real estate properties. This is one of the investment options that you have. Although you may have been burned by the crash that happened to the housing market during the Great Recession, you should know that this market always recovers. Land is something that cannot be reproduced. It will appreciate over time – regardless of how many times the housing market will fail. It is always a smart move to invest in something that you know will rise in value.
- Ride it out and wait for the market to recover. Finally, what you can do if there is a repeat in what happened recently is to just ride it out. As mentioned, you need to keep yourself from withdrawing the money but you still have to be vigilant and observant. Monitor the developments in the market so you can make your move as changes happen.
All of these efforts are meant to help you secure the retirement fund that you are building up for your future. Make sure you work hard to build it up. Who knows? You may be able to retire early if your investments pay off.
Tips to keep your retirement money from running out on you
Of course, your efforts will not stop at building your retirement fund. You also have to think about how you will ensure that you will not outlive your money.
To do this, you need to start by looking at the various sources of retirement income. Fool.com revealed that there are three main sources of income.
The first is the 401(k) savings. The second is Social Security. The last involve private pensions, government pensions, etc. According to the article published on the Fool website, the statistics of these three leave a lot of room for improvement.
Take for instance the 401(k). The statistics show that a savings of $101,000 will only provide the retiree with $4,000 each year – if they follow the 4% withdrawal rule. The majority of the median savings across the income brackets is below $100,000. The average savings of $62,500 will only give retirees with $2,500 each year. In terms of the Social Security, the average retiree gets $1,329 each month. This is hardly enough to provide a retiree with a comfortable lifestyle – even if they combine it with the pitiful amount that they will get from their 401(k). Even if you add other sources of retirement fund like stocks, bonds and pensions, it will still not be enough – especially if you take into consideration the high healthcare costs in the country.
Obviously, you need to do something else so you can ensure that your retirement money will not run out on you. Here are some tips that you can use to help with this.
- Work while in retirement. If your money is really not going to outlive you, then you need to consider how you will add to the funds that you currently have. One option is to work while you are retired. There are career options that are not stressful but will still allow you to earn even a small amount of money. You can become a consultant, tutor, etc. Use your hobby to earn. There are so many things that you can do if you are resourceful enough. Just make sure you know the facts about working in retirement so you do not get into trouble with your other sources of income.
- Downsize. If you cannot add to your income, then you need to downsize your lifestyle so it can be supported by your meager retirement fund. Those who do not want to work while in retirement have actually opted to leave the country to live there. They have chosen countries that offer a lower cost of living. This way, they do not have to compromise their standard of living and still have enough money to retire on.
- Get rid of debt. The last tip that you can do is to eliminate the debts that you have. Live a frugal lifestyle so you can pay off the debts that you have. When you maintain credit, you are wasting money because of the interest that you have to pay off. Do not waste your money because you already have so little to begin with.
Here is a video from National Debt Relief that teaches you how you can live on less than what you are earning – at least, to give you enough to support your retirement fund.
