HARTFORD, Conn. — What would a recession and a drop in the stock market mean for your retirement account?
It depends on how you manage it.
Most people use a retirement fund that only requires them to pick an end date, and from there, it’s set-it-and-forget-it, especially if you’re younger and have more time to overcome a drop in the markets.
“You don't want to make any inherent changes, it should all be based on your timeline to retirement,” said Chartered Financial Consultant John Caserta.
Those retirement funds change their allocations automatically to become more conservative as you get closer to retirement so that you would lose less money if the stock market drops.
But what if you manage your stock portfolio yourself? Caserta said you must ensure you know yourself when making those adjustments and not get too greedy.
“I think is a great reminder that your portfolio has to match your risk tolerance. And studies have shown that people think they're a lot more risk-tolerant than they really are,” said Caserta.
Another way to blunt any big drops in the stock market is to diversify your investments.
“Not putting all those eggs in that proverbial one basket, you really want to have things that are uncorrelated, meaning, if one's going down, something's still holding its value, or potentially even increasing,” Caserta said.
Now, let’s visualize retirement itself.
Do you have a mental picture of you and your spouse running away from your jobs and never working again with all the free time in the world? Caserta said if so, you might not have thought everything through.
“We do a great job of romanticizing retirement, right? We're not working anymore, we're doing what we want,” Caserta explained, “but I've seen this happen, where when every day is a Saturday, it becomes really old really quickly.”
You need to think about how you will spend that time because Caserta said doing nothing could do more harm than good…
“Study after study has shown that it could lead to a decline in physical and mental health,” Caserta said.
The next consideration should be how much money it costs to do things you’re going to do.
To start, get a baseline of your retirement spending ahead of time. One idea is to try to live on your expected retirement income for a few months before you retire and adjust from there. If you plan on spending some of that free time traveling, you will probably need more money.
However, on the flip side, don’t underestimate the benefits, albeit ironic, of spending some of your retirement working.
“I do think a lot of people underestimate the desire to work in retirement,” said Caserta, “it's rare that I come across people that say, ‘I'm not going to do anything at all.”
The benefits of working, even part-time, are two-fold.
Not only will you earn more money, but it’s likely that, while you’re on the clock, you won’t be spending money you otherwise would. This might help ease the burden of saving enough for retirement.
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Tim Lammers is an anchor at FOX61 News. He can be reached at Tlammers@fox61.com. Follow him on Facebook, Twitter, and Instagram.
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