4 Retirement Moves to Make in June Before the Summer Slowdown Hits

Summer is historically the worst season for stocks. Many investors “sell in May and go away”, reducing trading volume while driving up volatility. The Fed also goes through a “blackout period” from July to September, which bars Fed officials from making public comments or economic forecasts, further reducing the market’s appetite for higher-growth stocks.

Younger investors who still have decades before retirement shouldn’t worry too much about those annual summer slowdowns. The S&P 500 has still generated an average annual return of about 10% since its inception in 1957, so “selling in May and going away” every year would have significantly reduced your long-term gains. But if you’re planning to retire soon and can’t ride out another boom-and-bust cycle, you should make a few prudent moves this month.

Image source: Getty Images.

1. Rebalance your portfolio

The S&P 500 has rallied more than 260% over the past 10 years, but the Magnificent Seven stocks accounted for a large share of those gains. Therefore, some of those stocks — like Nvidia (NASDAQ: NVDA) — likely account for a big percentage of your portfolio.

To stabilize your portfolio and reduce your dependence on a single stock, you should trim those winning positions and reinvest that cash into your weaker positions. It might seem counterintuitive to sell your best stocks, but rebalancing your portfolio before the summer slowdown hits will help you lock in your gains and free up more cash for other investments.

2. Rotate toward defensive dividend stocks

If you’re planning to retire soon, you should pursue predictable returns and passive income rather than aggressive growth. That means trimming your stake in Nvidia, which might still have plenty of long-term growth potential, and investing that cash in a boring — but evergreen — dividend stock like Coca-Cola (NYSE: KO). These blue chip stocks have a proven track record of recovering from recessions and reward patient investors with steady dividend hikes.

Coca-Cola, for example, has raised its dividend annually for 64 consecutive years. That makes it a Dividend King, having raised its payout for at least 50 consecutive years.

3. Buy more fixed-income investments

By the time you’ve saved up enough for your retirement, your goal should be to preserve your capital and beat inflation (currently at 3%-4%) instead of outperforming the market with higher-growth stocks. The easiest way to accomplish that is to buy low-risk fixed-income investments such as CDs, T-bills, and investment-grade bonds. With the Fed’s benchmark rate at 3.50%-3.75%, it’s still a great time to lock in solid yields with those fixed-income plays.

Municipal bonds, which are exempt from Federal taxes and state taxes (if you live in the issuing state or a state without income taxes), are also a great choice for retirees who want to earn some low-risk income without the burden of additional taxes.

4. Review your IRA and Social Security plans

Lastly, review your retirement and Social Security plans. You can generally start withdrawing from retirement accounts at the age of 59 1/2 without incurring the IRS’ 10% penalty for early withdraws on tax-deferred accounts. You can also start claiming Social Security benefits at the age of 62, but your annual payments are permanently reduced by 30%. You can only claim the full benefits if you start claiming them at the Full Retirement Age (FRA) of 67.

If you still have plenty of liquidity from your stocks and fixed income investments, you shouldn’t prematurely withdraw those funds. That said, investors who are counting on those checks to fund their retirements should probably allocate more funds toward dividend stocks or fixed-income plays to diversify their passive income streams.

Even if you’re about to retire, you shouldn’t panic about a potential market crash this summer. However, it’s a good time to review your portfolio, rebalance your holdings, and make sure you’re generating enough passive income to outpace inflation and enjoy your retirement.

Leo Sun has positions in Coca-Cola. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.