Baby Boomers: Should You Move Your Retirement Funds Out of the Stock Market?
Earlier this week, stocks took a free fall. The Dow plunged almost 1,600 points, the worst decline in history during a trading day. At the time of this writing, the stock market had recovered about half the losses. But did that upsetting drop make you baby boomers surprise if you should stay invested in the stock market?
If so, the short answer is that it depends on your age.
The good news: Younger baby boomers don’t have reason to worry about the correction, says Kyle Woodley, senior investing editor at Kiplinger.com. Remember, the 2008 stock market crash had a recovery time of six years.
“If you’re between 50 and 60, there’s nevertheless time to retrieve,” Woodley says in a MarketWatch article, At What Age Should You Be Most Worried About a Stock Market Downturn? “Fifty years ago, life expectancy was much lower. You’re not investing for the next 5 or 10 years, you’re investing for the next 20. You have room to grow your nest egg and participate in that growth. Half a century ago, you would have been in two-thirds bonds in your 50s. That’s not the case anymore.”
Financial guru Suze Orman agrees. “If you are saving for retirement or another goal that is 10 or more years off in the future, you should be happy stock prices are down,” she says. “When stock prices are lower, your money buys more shares. And then you own more shares for when stock prices rebound.”
One rule of thumb for your retirement money you might consider is to keep your age in safe investments, she adds. “So if you are 60 you might have as much as 60% in CDs or short-term Treasuries, and the rest can stick with stocks.”
Keep in mind, because the market has soared the last eight years, you may need to rebalance your retirement portfolio to ensure your investments are aligned with your risk tolerance. Otherwise, you could lose a lot more money if the market crashes.
What if you’re older and plan to retire in the next five years – or perhaps you’re already retired and drawing from your retirement funds?
Some older boomers may have more reason to worry: Jared Snider, senior wealth adviser at Exencial Wealth Advisors in Oklahoma City, says that your risk depends on how well you have prepared for a downturn. “Those folks who have not prepared are most impacted by it. It can do irreparable harm. They sell out of fear or out of necessity because they don’t have any other assets to liquidate.”
Experts generally agree that you shouldn’t invest anything you’ll need within the next five years. That way you’ll avoid pulling out all of your money during a market downturn which historically has always come back up again.
“If the market crashes, you’ll need to be able to ride the storm out instead of selling everything in a panic,” writes Katie Brockman in a CNN Money article, How to Protect Your Retirement Savings from a Crash. “By only investing money that you know you won’t need for at the minimum five years, it will be easier for you to leave those savings untouched until the market recovers.”