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While you may have a solid plan in place for when the stock market is falling, you may not have a strategy for what to do differently when stocks rise. GOBankingRates asked financial experts from across the country to explain what retirees should do when the stock market is rising. Here are their suggestions:
Reassess your financial plan and long-term investment strategy
All of our experts agree that when the stock market is rising, you should reevaluate your financial plan to make sure it still meets your needs and goals.
Douglas A. Boneparth, CFP® “When the market is at an all-time high, it’s normal to feel like you should do something, especially for retirees who are typically more sensitive to asset declines and market fluctuations,” explained John McClellan, president of Born Fide Wealth.
“But just because the market is rising doesn’t mean you should make drastic changes,” he warns. “While rebalancing is probably appropriate, it might also be a good time to reevaluate your financial plan and long-term investment strategy to see if it still makes sense for you. If you do, you might come to the conclusion that you can mitigate some of your risk by making above-average returns.”
“One of the fundamental questions for retirement is how much you can withdraw from your savings without running out of money during your lifetime,” says Christopher Stroup, a certified financial planner at Abacus Wealth Partners. “Having a solid plan in place can limit the chances of needing to make changes in the future if the market declines.”
Renew your plan
“Updating your plan with your current portfolio values ​​can provide insights such as opportunities to improve your spending power, defer Social Security benefits or pursue new goals. Before making any significant changes, it’s important to understand the risks involved and ensure those changes will be sustainable even if the market declines,” says Jordan Patrick, CFP, senior financial planner at Commas.
Make sure you have a sufficient emergency fund
“Make sure you have a deep emergency fund,” Stroup says. “No one can reliably predict the direction of the markets, so having a solid cash reserve will be a valuable shock absorber when the market inevitably drops in the future. If you have insufficient funds in your emergency fund, selling stocks when the market is high (rather than selling at low prices) is a good bet.”
Consider deferring Social Security
Stroup also suggested that people who retire when stock prices are rising should think carefully about when they take their Social Security benefits.
“A rising market may provide an opportunity to delay taking Social Security, especially for those who have been living off cash savings and portfolio assets. For every year you delay taking benefits, you can expect to see a 7-8% increase in your future benefits, up to age 70,” he said.
Rebalance your portfolio
When the market is on the upswing, retirees are[r]”It’s important to rebalance your portfolio as you planned,” Stroup says. “If the market has risen and your portfolio has tilted toward stocks, now may be a good time to sell your stocks and reinvest the proceeds into other assets, like real assets or bonds. This is why having a long-term investment strategy is so powerful – it keeps you grounded when markets are rising and gives you peace of mind when markets are down. This will lead to a better investing experience in the long run.”
Patrick also thinks that a strong stock market could encourage retirees to “look for opportunities to rebalance.”
“Most retirees have a target asset allocation that defines the characteristics of their portfolio, such as the ratio of stocks to bonds, domestic to international stocks, and small-cap to large-cap stocks,” he says. “When markets rise, your holdings may stray from this target allocation. Rebalancing involves selling overweighted categories and buying underweighted categories to maintain your desired portfolio composition and risk profile. The rebalancing process ensures that your investments remain aligned with your long-term financial goals and risk tolerance.”
Consider donating appreciated securities
Retirees:[c]”Consider donating securities that have appreciated in value,” Patrick says. “If you donate your stocks directly to charity, you won’t have to pay taxes on the growth in your stocks. This strategy can increase the impact of your donations rather than selling your stocks, paying taxes on the growth, and donating the remaining cash.”
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