When you think of a hungry bear, you might think of a cute scene where the bear eats honey or a scary scene where you might have to be faster than the other guy to survive. A bear market is aptly named, because like a hungry bear, it eats stock prices. The fall in the stock market has many companies, billionaires, and now retirees rethinking their strategies to maintain their finances. CBS News’ Irina Ivanova reports on nearly $3 trillion in retirement savings in the stock market lost, and how we move forward.
Retirement Savings in the Stock Market
Whether they’re seasoned investors or not, every senior has dealt with the stock market on account of their 401(k)s. Approximately three-quarters of all 401(k) accounts are tied to the stock market, and when it comes down, so do those plans. Because of the volatility of the current market, retirement investing has become riskier than in years prior.
For seniors to achieve continued success, now more than ever, it’s imperative that they carefully consider the type of account they plan on investing in. For example, a plan that offers more convenience may not be the best option. Many seniors utilize a “target-date fund,” with more than half of all 401(k)s participating.
A target-date fund is a mutual fund created to attempt to optimize assets against risk within a certain time frame. Simply put, they automatically adjust investments to meet a goal by a date you set. This kind of fund can be incredibly beneficial; it makes it easy to edit your portfolio and it can grow considerably quick in a booming market.
The problem lies in its level of risk tolerance. The target-date fund will lower its risk levels the closer it is to the goal; but if it still has a way to go, then it will ramp up efforts despite the higher level of risk. The bear market, and its impact, has target-date funds falling between 10 and 22 percent.
Calculating the Risk
Seniors now face another hurdle. What to do is your 401(k) is not where you want it? Retirement savings in the stock market are often put through the ringer — but remember that it’s only a loss if you withdraw on a low note. Markets have a way of bouncing back, but the timeline can be hard to nail down. Seniors can survive the risk by diversifying their streams of income and using different types of retirement accounts at the same time to minimize risky investments.