Stock market slump unsettling Americans eying retirement

May 23, 2022, 4:05 PM | Updated: May 24, 2022, 6:24 am
Mark Bendell and his wife Laurie talk in their kitchen, Monday, May 23, 2022, in Boca Raton, Fla. A...

Mark Bendell and his wife Laurie talk in their kitchen, Monday, May 23, 2022, in Boca Raton, Fla. A stock market slump this year, which has taken big bites out of investors’ portfolios, including retirement plans like 401(k)s, is worrying Americans who are within a few years of retirement. (AP Photo/Marta Lavandier)

(AP Photo/Marta Lavandier)

Americans on the cusp of retiring are facing a tough choice as they watch their nest eggs shrink: Stay the course or keep working.

A stock market slump this year has taken a big bite out of investors’ portfolios, including retirement plans like 401(k)s. The S&P 500, the benchmark for many index funds, is down about 17% since its all-time high in early January.

The sharp reversal after a banner 2021 for Wall Street has been particularly unsettling for those who have been planning to retire sooner, rather than later, and banking on a healthier stock portfolio to help fund their post-work lifestyle.

It doesn’t help that the cost of everything from gasoline to food is up sharply amid the highest inflation since the 1970s. And that the Federal Reserve’s recipe for fighting inflation — hiking interest rates — has heightened fears the U.S. economy will slide into a recession. All of that is bad news for corporate earnings growth, which is a key driver of stock prices.

The market skid has financial planners hearing more often from anxious clients seeking advice and reassurance in equal measure. They say some clients are opting to push back their retirement date in hopes that will buy time for their investments to bounce back. Meanwhile, retirees already tapping their investments may have to consider beefing up their savings with a part-time job or putting off major travel or spending plans.

“From late 2020 through 2021 we saw a wave of clients retire because of the large gains in the stock market and because they no longer wanted to work in the COVID ‘new normal’ work environment,” said Mark Rylance, a financial planner in Newport Beach, California.

This year, half the clients who discussed retirement opted to still retire, while the other half decided to hold off, he said.

Historically, the stock market has tended to deliver positive returns within a year following steep declines. But unlike younger investors who can ride out Wall Street’s sharp swings, workers closing in on retirement don’t have as much time to make up losses from hefty market downturns.

“I am a little afraid — I don’t want to work until I’m 70,” said Nancy Roberts, a librarian in Meridian, Idaho.

The 60-year-old is counting on her IRA to fund her retirement, which is a little over 4 years away. But the market decline has her feeling stressed.

“I do know I’ve lost money, but I’m trying not to freak out and look at it every day,” she said.

Many soon-to-be retirees are also terrified about inflation, which can be “devastating” over decades, said Mark Struthers, a financial adviser with Sona Wealth Advisers in St. Paul, Minneapolis.

Social Security has a built-in inflation adjustment, but it doesn’t keep up with real inflation, and pensions — which far fewer workers have these days — often max out the inflation adjustment at 1.5%, he said.

“Compounding is magical when it is working for you, but devastating when it’s working against you,” Struthers said.

He advises retirees who are worried about getting by on their savings to be willing to cut back on spending on big-ticket items. That could mean taking a big vacation every other year, instead of annually, or waiting 10 years rather than 7 to buy a new car. Struthers also strongly recommends that retirees work part-time.

When stocks are in a downward spiral, investors traditionally shift money into bonds, which are less risky than stocks. But bonds have not been a refuge from losses lately. High inflation has made bonds, and the fixed payments they make, less attractive. One index of high-quality U.S. bonds has lost more than 9% so far this year.

Despite the market’s decline, investors like Mark Bendell in Boca Raton, Florida, are sticking to their retirement timeline.

The engineer decided early in 2021 that he would retire before the end of this year. The 62-year old reviewed his finances with a financial adviser and came away confident he would be able to live off his nest egg, which includes a 401(k) plan he’s been contributing to for about 34 years, a small pension, savings and Social Security. His wife Laurie, a teacher, plans to retire next year.

Not that watching the stock market plunge hasn’t been difficult.

“I have a stiff drink about a couple of times a week and then I take a look at my investments,” Bendell said. “I don’t look as much as when the market was climbing.”

Other than tweaking his 401(k) to make sure it wasn’t heavily invested in more speculative holdings, Bendell hasn’t made any major changes to his investment strategy since he started his retirement countdown clock.

“I stayed the course,” he said. “Trying to time the market doesn’t work, and I believe that.”

That approach, even during big market slumps, is typical among investors with 401(k)s or IRAs. A Fidelity Investments review of 24,000 retirement investment plans found that only 5.6% of people with a 401(k) made a change to their plan’s allocation in the first quarter. That compares to 5.3% in the last three months of 2021 and 6.4% in the first quarter last year, the company said.

The set-it-and-forget-it strategy helped, but didn’t shield investors entirely from losses this year. The average Fidelity 401(k) plan balance stood at $127,100 in the first quarter, down 2% from a year ago and off 7% from the fourth quarter.

Wall Street has been racking up gains more often than losses over the past decade. The market plunged 34% in March 2020 at the height of the pandemic lockdowns and climbed to new highs a few months later. Last year, the S&P 500 scored its third-best performance in the last decade, delivering a total return of nearly 29%, including dividends.

That’s why Americans who’ve long been socking away money into 401ks and other retirement investment accounts are likely still well ahead. Consider: The 1.7 million investors who have had a 401(k) through Fidelity the past 10 years saw their balance soar by an average of nearly fivefold to $383,100.

However, as of the end of 2019, only about 60 million employed Americans had a 401(k) plan, according to the Investment Company Institute, an association representing investment funds.

Previous years’ stock market gains are hard to keep in perspective when one’s retirement account balance shrinks by the day, however.

Having the bulk of her retirement savings in her IRA as the market declined has been “unnerving,” said Roberts, the librarian from Meridian.

So, she’s leaving it in the hands of her financial adviser, who sends her regular updates and has moved some of her money from higher-risk investments into mutual funds.

“They’ll move some money to cash if they have to, temporarily,” she said.

Roberts works four days a week at a library, spending the rest of the week caring for her elderly mother and taking her to doctor’s appointments. If she had to, she could try to work five days a week, though it would be a strain.

“I want to have some time to spend with my adult daughters, so I’m really hoping that my IRA hangs on,” she said.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

Today in History: July 2, Amelia Earhart disappears

Today in History Today is Saturday, July 2, the 183rd day of 2022. There are 182 days left in the year. Today’s Highlight in History: On July 2, 1937, aviator Amelia Earhart and navigator Fred Noonan disappeared over the Pacific Ocean while attempting to make the first round-the-world flight along the equator. On this date: […]
21 hours ago
Associated Press

Baby’s father charged in slaying of stroller-pushing NYC mom

NEW YORK (AP) — The ex-boyfriend of a New York City woman shot dead Wednesday as she pushed their infant daughter in a stroller has been arrested and charged with killing her, police said Friday. Slain mother Azsia Johnson’s family identified suspect Isaac Argro as the baby’s father and said he routinely abused Johnson, beating […]
21 hours ago
Associated Press

Judge: Sheriff must post bail after anti-harassment order

TACOMA, Wash. (AP) — The sheriff of Pierce County, Washington, was ordered to post $100,000 bail while he awaits trial on false-reporting charges related to his controversial confrontation last year with a Black newspaper carrier. Judge Jeffrey Jahns on Friday imposed the bail — 10 times the amount requested by prosecutors — during a hearing […]
21 hours ago
Associated Press

Sheriff: People getting out of Texas trailer were work crew

SAN ANTONIO (AP) — A group of people who were spotted getting in and out of a parked semitrailer in San Antonio were part of a work crew, not a human-smuggling operation, authorities said Friday. Authorities checked the vehicle after someone alerted a deputy constable to it, just days after 53 migrants died when they […]
21 hours ago
Lauren Wright, a Navy spouse whose family was sickened by jet fuel in their tap water, looks over w...
Associated Press

Distrust remains after Navy report on tainted Hawaii water

HONOLULU (AP) — Lauren Wright continues to be leery of the water coming out of the taps in her family’s U.S. Navy home in Hawaii, saying she doesn’t trust that it’s safe. Wright, her sailor husband and their three children ages 8 to 17 were among the thousands of people who were sickened late last […]
21 hours ago
Lauren Wright, a Navy spouse whose family was sickened by jet fuel in their tap water, points out a...
Associated Press

Distrust remains after Navy report on tainted Hawaii water

HONOLULU (AP) — Lauren Wright continues to be leery of the water coming out of the taps in her family’s U.S. Navy home in Hawaii, saying she doesn’t trust that it’s safe. Wright, her sailor husband and their three children ages 8 to 17 were among the thousands of people who were sickened late last […]
21 hours ago

Sponsored Articles

Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
...

Compassion International Is Determined to ‘Fill’ a Unique Type of Football ‘Stadium’

Compassion International SPONSORED — During this fall’s football season—and as the pandemic continues to impact the entire globe—one organization has been urging caring individuals to help it “fill” a unique type of “stadium” in order to make a lasting difference in the lives of many. Compassion International’s distinctive Fill the Stadium (FtS, fillthestadium.com) initiative provides […]
...

What are the Strongest, Greenest, Best Windows?

Lake Washington Windows & Doors SPONSORED — Fiberglass windows are an excellent choice for window replacement due to their fundamental strength and durability. There is no other type of window that lasts as long as fiberglass; so why go with anything else? Fiberglass windows are 8x stronger than vinyl, lower maintenance than wood, more thermally […]
...

COVID Vaccine is a Game-Changer for Keeping our Kids Healthy

Snohomish Health District SPONSORED — Cheers to the parents and guardians who keep their kids safe and healthy. The dad who cooks a meal with something green in it, even though he’s tired and drive-thru burgers were tempting. The mom who calms down the little one who loudly and resolutely does NOT want to brush […]
Stock market slump unsettling Americans eying retirement