Protecting Your Retirement Savings During a Market Downturn

Published on June 28, 2023

Retirement Account Protection in a Time of Market Downturn

As we all know, the stock market has had a rocky road since early 2022, which is continuing today (late second quarter of 2023 at the time of this writing). Given world events, inflation, and an economy that runs in fits and starts, knowing how to treat one’s retirement plan during a market downturn is a $64,000 question for many investors.

Plan for retirement success: fund your retirement account

As we’ve said many times, save often! Contributing to your IRA or employer-sponsored plan as often as you can—and meeting contribution limits—will help you establish a solid base, even when the market gets a bit wonky. Don’t let that volatility scare you away from funding your retirement account consistently; stay the course with a funding strategy that works best for your current financial situation and your future retirement plans.

Avoid early withdrawals

Don’t give into the temptation to take distributions before age 59-1/2 during a downturn. Taking early withdrawals will trigger a 10% penalty plus the tax on that income. Remember, saving for retirement is a long-term game. Talk to your trusted advisor about making a shift in strategy perhaps, and let those funds continue to grow in your tax-advantaged retirement plan. If you are still working through your 60s, keep in mind that the age at which required minimum distributions from your retirement account must begin is newly set at age 73, effective this year.

Develop a plan for a comfortable retirement

These are elements to consider when planning for retirement; these help you create a retirement savings road map. They’re not only for periods of economic/market downturn—they are critical pieces of your retirement road map at any time.

• When you plan to stop working full time (and therefore, at what age you plan to retire) – remember, this is a road map and you can course-correct as needed

• When you plan to claim your Social Security benefits (at full retirement age or age 70), and how much your monthly benefit will be

• Part-time work during retirement years – if you will be working part-time after you say “I’m retired,” is that a part-time job with a different employer? A part-time arrangement with your current employer? Or will you do consulting or freelance work in your field as a 1099 independent contractor?

• Preferred lifestyle – what will you spend your money on?
  • Do you look forward to a more home-centric life?
  • Will you enroll in lifelong learning classes?
  • Are there hobbies to engage in (and which may need some money to enjoy)?
  • Is world travel on the retirement map?
  • Will you indulge in your love of theatre, concerts, museum visits, or other arts?
  • How often do you plan to dine out with friends and family? 

• Retirement residence – think about whether you will stay in your current home (and for how long), downsize, or move to a different part of the country (which may be more or less expensive than where you reside today)

• Remember to factor in potential medical expenses you may incur in later years — some estimates peg that amount at around $295,000 for the average retiree

Create a protective shield for your retirement savings: a self-directed IRA

Typical retirement accounts include stocks, bonds, and mutual funds—all subject to market volatility. However, saving for retirement with a self-directed IRA enables you to create a hedge against market volatility while diversifying your portfolio with a broad array of alternative assets typical plans do not allow.

With a self-directed IRA, you can include nontraditional investments that you already know and understand—and may already be investing in outside of your existing retirement plan. You can take advantage of interesting investment opportunities that arise with greater agility. And you can create a long-term investing strategy with assets whose performance is not correlated with the stock market.

There are so many ways to build retirement wealth by including alternative assets within a self-directed IRA. Assets that you can include in that protective shield around your retirement savings include (but are not limited to):

• Real estate
• Precious metals
• Private equity
• Commodities
• Royalties
• Mineral rights
• Unsecured and secured loans
• Impact/ESG investments
• Tax liens

Contact Next Generation to get started

Next Generation offers full administration of self-directed retirement plans as well as custodial services for the assets within those plans. If you need more information about all the benefits and options of self-direction as a retirement wealth-building strategy, you can schedule a complimentary education session with one of our knowledgeable team members. If you are ready to open a new self-directed IRA or another type of account (such as a solo 401(k), HSA, or Coverdell ESA), you can go to our starter kits for the forms and step-by-step instructions.

Still have a question? You can text us through our website, or contact Next Generation by email at NewAccounts@NextGenerationTrust.com or by phone at 888.857.8058.