This One Move Could Slash Years Off Your Retirement
Written by
Jennifer Taylor
Edited by
Zuri Anderson
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A stock market correction could be looming. Learning how to properly navigate it could be a retirement game-changer.
There will likely be a 10% to 20% decline in equity markets in the next 12 to 24 months, said Goldman Sachs CEO David Soloman at the Global Financial Leaders’ Investment Summit in Hong Kong, per CNBC. At the same panel, Morgan Stanley CEO Ted Pick said the possibility of 10% to 15% drawdowns should be welcomed, as they’re a healthy development.
Additionally, J.P. Morgan Global Research predicted a 35% probability of a U.S. and global recession in 2026. This probably isn’t reassuring, but panicking will likely make things worse.
This Move Could Significantly Impact Your Retirement Lifestyle
Given the likelihood of a stock market correction, you might feel compelled to cash in your retirement accounts, but this move could cost you. Since it’s hard to predict when a crash will occur, taking this drastic step typically isn’t a good idea for several reasons, said Hardik Patel, founder and financial advisor at Trusted Path Wealth Management.
First of all, taking money out of a retirement account can cause you to incur taxes and penalties, he said.
“Withdrawals from pre-tax retirement accounts are taxed as regular income,” Patel added. “If the investor is under retirement age, there may also be a 10% early withdrawal penalty.”
Additionally, inflation may cause money left in a bank account for a long period of time to lose value, according to the financial advisor.
“I saw clients and family members move retirement money to cash or 100% bonds during the pandemic and miss the huge upside that followed,” said Vered Frank, certified financial planner (CFP), founder and financial advisor at Stack Wealth. “After the March 2020 low, the S&P 500 more than doubled in one of the fastest bull-market recoveries in history.”
This could have caused a pre-retiree who moved $1 million out of their retirement account to miss out on $300,000 or more in interest earnings, she said. Such a significant amount of money could determine when you’re able to retire, how long you can delay taking Social Security benefits or the amount you’re able to stretch your income in retirement.
“Even today, I still see people who haven’t reinvested their retirement accounts since then either because they forgot, worried the market was too high or are now anxious about another potential crash,” according to Frank.
Being cautious with your money is smart, but too much apprehension could be a sign your investment strategy needs refined.
“Fear is worth noticing, but it usually signals a portfolio that no longer fits risk tolerance or life stage — and not a reason to abandon a retirement strategy,” she said.
How To Feel More Confident in Your Retirement Strategy
Investors can feel secure without going all cash by keeping an emergency fund outside retirement accounts, gradually reducing risk rather than making abrupt moves, and having a written plan to guide decisions when markets get scary. According to Frank, this should serve as a roadmap in a bearish market and gradual reduce risk.
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