How to protect your savings in a bear market

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Inflation and a relentless global pandemic have set the stage for a bear market in 2022. And a pullback in the stock markets could reduce the value of your retirement account and keep you in the workforce longer than expected.

On the other hand, you could have said that the conditions are right for a bear market in 2021 as well. But the S&P 500 the index did the opposite, increasing by more than 25% in the past 12 months.

The truth is, neither you nor I can predict the next one bear market precisely. We can spot signs of trouble ahead, but it’s unclear how or when the stock market will react. What we can do is prepare our finances for any kind of market climate. Start with the four moves below to protect your 2022 pension plan to be ravaged by a bear market.

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1. Check your asset mix

If you are heavily invested in actions or equity funds, your retirement portfolio will be volatile. This is because the stock market experiences large corrections – this is usually when stock prices fall. During these cycles, most of your stocks will experience declines in value.

Obligations and bond funds, however, react differently to stock market corrections. They tend to hold their value and can sometimes even become more valuable when stocks go down.

Increasing your relative exposure to bonds can add stability and resilience to your portfolio. The trade-off is that you will have lower growth opportunities. But if retirement is fast approaching, this compromise may be worth it.

2. Add to your cash savings

Bear markets become problematic when you need to liquidate. Stock prices are going down and the liquidation is blocking your losses. In a perfect world, you would avoid selling your stocks until the bear market ends and stock prices recover.

Unfortunately, it’s hard to wait for a bear market when you’re about to retire. If you want to receive retirement distributions, you usually need to liquidate stocks, that is, unless you have some other source of cash on hand.

That’s why it’s a good idea to increase your cash savings as you approach retirement. The more liquidity you have, the longer you can delay these bear market liquidations. You might not have enough money to survive the bear market, of course. Still, the money you have available saves you time to plan your next move.

3. Plan your Social Security

Your cash savings are not your only source of funding outside of your retirement portfolio. You should also have Social Security back on the way for you.

You can find a personalized Social Security projection by creating an account on my social security. Once logged in, you can view your estimated benefits at different claim ages. You will see that you can generate higher income by delaying your Social Security application.

Once you have an idea of ​​your potential Social Security income, estimate how long your cash savings will last – without the added bonus of distributions from the retirement account. If you can get by for a year or more with cash and Social Security, you’ll have a good layer of protection against a bear market.

► Social security: These 2022 updates could hurt your finances

4. Have a backup plan

In order to prepare for the worst, make a backup plan. If a bear market reduced your retirement portfolio by 30%, what would you do? You could delay your retirement, but there are other options as well, including:

  • Transition to part-time work instead of full retirement.
  • Reduce the size of your house to reduce your living expenses.
  • Relocate to reduce your living costs.

It’s a good idea to create your backup plan before a bear market sets in. When times are right, you can think more clearly and make better decisions. And then, if the market turns bad, you will already know what to do.

Want to take early retirement? These 3 factors can hinder

Bring it on, 2022

You can keep your 2022 retirement plan in the face of a bear market by strengthening your finances now. Take the risk out of your wallet, boost your cash savings, quantify your Social Security benefits, and design a backup plan. With these moves, you are ready for the year to come. May 2022 bring what it can.

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