The stock market is volatile, yet most of us store our retirement savings in its unpredictable clutches.
So what do you do when the stock market crashes before the day you chose as your retirement?
The stock market is cyclical, and historically it’s had a major crash every decade or so.
Normally, the best strategy to handle a crash is simply to ride it out.
If anything, see if it’s possible for you to buy more when prices are low.
To start, formulate your monthly budget.
Our society today is built around a monthly financial cycle.
Your home and car payments are monthly, as are your utility, phone and cable bills.
If you claim Social Security, it comes in monthly payments.
Therefore, it’s important for you to figure out how your retirement fund will cover those monthly bills.
So, convert your investments to things that produce a monthly or quarterly income stream.
When the stock market crashes, those investments continue to yield their monthly or quarterly income.
Here are a few alternatives.
Bonds
The older you get, the more you shouldshift your investments from stocks to bonds.
physically buying actual bonds.
(Single bonds run around $1,000 a piece and transactions costs are high.
Be aware, though, that when interest rates rise, the value of bond funds will fall.
Annuities
Annuities are products sold by financial services companies.
You typically buy one with a lump sum, and in exchange it pays you a regular monthly payment.
Essentially, it pays you back your investment and the interest/yield over so many months.
Those payments are largely unaffected by the state of the economy or the stock market..
The key word in that sentence is “paid,” because those paid professionals don’t come cheap.
They often get sold like timeshares, by highly commissioned agents.
They often don’t.
It’s expensive, but beats doing nothing.
When the stock market crashes, the prices of these stocks go down, too.
Preferred Stock:The second special class of dividend paying stocks is preferred stock.
Some pay a higher rate than other dividend stocks, but the dividend never grows.
Others have variable dividend rates.
Preferred stocks are almost like bonds, in that they pay a quarterly dividend.
As with dividend aristocrat stocks, you’re free to invest in preferred stocks throughETFsormutual funds.
If you’re close to retirement, the time to make those changes is now.
Photo byJim Vallee(Shutterstock).
