How to Make Sure Stock Market Volatility Doesn’t Tank Your Retirement Savings

It’s been a wild week in the stock market, and that has a lot of investors worried. If you’re concerned that a near-term stock market crash will destroy your retirement plans by sending the value of your savings plummeting, you’re in good company. But here are a few steps you can take to prevent that unwanted scenario.

1. Make sure you’re invested appropriately for your age

When you have several decades of work ahead of you, loading up on stocks in your IRA or 401(k) plan is the way to go. But as retirement nears, a safer bet is to shift toward bonds, which are generally subject to far less volatility than stocks.

Take a look at your investments and make sure they’re age-appropriate. If you’re in your 60s, having 90% of your IRA in stocks probably isn’t the best idea, unless you happen to have an extremely healthy appetite for risk and you also have other income robust sources to fall back on outside your retirement income. A more appropriate balance might be to keep 60% of your portfolio in stocks in the years leading up to retirement, with the remaining 40% in bonds. In fact, if you’re really close to retirement, you should also keep a portion of your retirement plan in a money market fund, which may not deliver stellar returns but is a relatively secure investment.

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2. Have a diverse portfolio

Maintaining a healthy mix of stocks and bonds in your retirement portfolio is a good way to protect yourself from volatility. At the same time, it’s a good idea to diversify within each asset class. That could mean holding not just tech and bank stocks in your IRA, but also, some healthcare and energy stocks as well. Or, you could load up on index funds, which offer built-in diversity.

As far as your bond investments go, be sure to mix things up there as well. That could mean splitting your assets between corporate bonds and municipal bonds, which can be a great source of tax-free income.

3. Keep contributing to your retirement account

When the stock market gets wonky, it can be tempting to pull back on retirement plan contributions until things settle down. Don’t do that.

First of all, you only have a limited window of time to pump money into your account. Second, investing when the market is down gives you a chance to score discounted stocks that can grow in value and help you build more retirement wealth. And finally, retirement plans offer tax benefits, so there’s no sense in giving those up. For example, the more money you put into a traditional IRA or 401(k), the less tax you’ll pay on your income. And even though Roth accounts don’t offer the same immediate tax break, you’ll still benefit from the tax-free growth and withdrawals they offer once you enter retirement and need to access your money.

When you’re getting close to retirement, a volatile stock market can be quite unsettling. But if you choose the right investment mix and stay the course, there’s a good chance you’ll get through that scary period with your retirement plans intact.

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