The S&P Was Up in 2021, but Most Retirees Didn’t Benefit

In 2021, the S&P 500 was up over 20%. The S&P 500 is a financial index that tracks the performance of around 500 of the largest companies in the United States. Most people consider its return to reflect the stock market’s performance as a whole. S&P index funds are a very popular investment, so many people saw their portfolios perform well.

Unfortunately, the majority of retirees weren’t among those people. In fact, according to a recent report issued by ThinkAdvisor, 57% of older adults reported their retirement savings were down by more than 10% in 2021. Another 10% of older adults indicated they’d suffered a decline of less than 10% in their retirement savings.

By contrast, just 16% of survey respondents said they’d experienced a gain of over 10% in 2021, while 6% saw some increase but not such a large one, and 11% found their savings stayed about the same.

It’s bad news that seniors fared so poorly even as the market went up — especially since this demographic group is also seeing a decline in the buying power of their Social Security benefits and is likely to be hit especially hard by surging inflation. For the millions of older Americans whose investments didn’t do very well, it’s important to be proactive in taking some key steps to preserve your financial security.

Image source: Getty Images.

Make sure you’re exposed to the appropriate level of risk

First and foremost, retirees must ensure they aren’t investing too conservatively or too aggressively.

Those with too little money in the market are likely to see their portfolios underperform and will be far less likely to earn the returns necessary to avoid losing buying power as prices increase. On the other hand, seniors who are overexposed to equities could risk outsized losses, especially in a volatile market.

Retirees with the knowledge to do so should develop an individualized assessment of risk given the size of their portfolio, life expectancy, other income sources, and retirement goals. But for anyone looking for a simple rule of thumb, just subtract your age from 110 to estimate how much of your portfolio should be invested in the stock market.

By making sure you have a good balance of investments that expose you to the right risk level, you can maximize the chances of your portfolio earning reasonable returns.

Re-evaluate your retirement investments

It’s also important to take a close look at what you’re invested in to ensure you aren’t paying high fees and you still believe in your investment thesis.

If you have individual stocks that are underperforming the S&P 500 substantially, you may just find you’re better off switching to an S&P index fund. This is the investment Warren Buffett recommends for most investors. Its strong performance track record combined with the instant diversification it provides makes it an ideal choice when you need to limit the risk you’re exposed to.

Make sure you’re maintaining a safe withdrawal rate

Finally, it’s important to be certain you’re not taking too much money out of your investment accounts — especially if your portfolio hasn’t been performing well or if you’re feeling the pinch due to inflation.

It’s better to look for cuts you can make to your budget now to preserve your nest egg for the future than to be forced to make very uncomfortable sacrifices later in life if your accounts run short.

By being proactive about assessing your investments and ensuring you aren’t overspending, you can hopefully shore up your financial security even if your portfolio underperformed the S&P 500 last year as it did for many seniors.

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