Yahoo Finance 6 Things Retirees Should Do When the Stock Market Is Up, According to Experts
While you may have a surefire plan for when the stock market is down, you may not have strategized what to change when it is up. At GOBankingRates, we asked financial experts from around the country to explain what retirees should do when the stock market is up. Here are their suggestions.
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Reassess Your Financial Plan and Long-Term Investment Strategy
All of our experts agree that when the stock market is up, you should take a look at your financial plan to ensure it is continuing to meet your needs and goals.
Douglas A. Boneparth, CFP® and president of Bone Fide Wealth, explained, “When markets are at all-time highs, it’s normal to think that there’s something you should do, especially for retirees who are typically more sensitive to drawdowns and market volatility.”
“However, just because the market is high doesn’t mean you should be making drastic changes,” he cautioned. “A rebalance is likely appropriate, but it might also be a good time to reassess your financial plan and long-term investment strategy to make sure things still make sense for you. Then you might conclude that clocking some above-average gains can afford you to take some risk off the table.”
Christopher Stroup, a certified financial planner for Abacus Wealth Partners, noted, “One of the fundamental questions while in retirement is: What amount can I take from savings without running out of money while alive? If you’ve put a strong plan in place, you can limit the chances of needing to make changes when a future down market eventually arrives.”
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Update Your Plan
Jordan Patrick, CFP, senior financial planner with Commas, said, “Updating your plan with current portfolio values could provide insights such as increased spending capacity, the ability to delay Social Security benefits, or the opportunity to pursue new goals. Before making any significant changes it’s important to understand the associated risks and ensure that these changes are sustainable even if the market goes down.”
Ensure Your Emergency Reserve Is Well-Funded
“Ensure that your emergency reserve is well funded,” Stroup said. “No one can reliably predict the direction of the market, so having a reliable cash set aside can be a valuable shock absorber when a future down market inevitably arrives. Selling some stocks while the market is at a high (versus selling at a low) could be a great move if your emergency reserve has a funding gap.”
Think About Delaying Social Security
Stroup also suggested that retirees in an up stock market should think twice about when they want to collect Social Security.
“Rising markets may afford you the opportunity to delay collecting Social Security, especially if you’ve been living solely off your cash savings and portfolio assets. For every year that you delay collection, you can expect a 7%-8% increase in your future benefit, up to the maximum age of 70,” he said.
Rebalance Your Portfolio
An up market may allow retirees the opportunity to “[r]ebalance your portfolio back to your plan,” Stroup said. “If a rising market has left your portfolio tilted towards equities, now may be a great time to sell equities and reinvest those proceeds into other assets like real assets or fixed income. This is why having a long-term investment strategy in place can be so powerful as it can help you stay grounded during market highs and bring peace of mind during market lows. This will make for a better investment experience over the long run.”
Patrick also believed that a strong stock market may allow retirees to “look for rebalancing opportunities.”
“Most retirees have a target asset allocation that defines their portfolio’s characteristics, such as the mix of stocks vs. bonds, domestic vs. international stocks, and small vs. large companies,” he said. “As the market rises, your holdings may drift from this target allocation. Rebalancing involves selling overweight categories and purchasing underweight ones to maintain your desired portfolio makeup and risk profile. The rebalancing process helps ensure your investments stay aligned with your long-term financial goals and risk tolerance.”
Consider Donating Appreciated Securities
Retirees could “[c]onsider donating appreciated securities,” Patrick said. “Donating stock directly to charity allows you to avoid paying tax on the growth of the stock. This strategy allows your giving to go further than if you had sold the stock, paid tax on the growth, and donated the remaining cash.”
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