No matter what you want to blame it on (Omicron variant, inflation, Ukraine, politics, UFO sitings, etc.), 2022 didn’t get off to a very good start in January. We even moved into “a market correction” briefly before a small bump in the last two days of the month. If you’re close to retirement, you might be wondering what should you do when the market drops. In this article I’ll run down a few tips to help you stick to your plan.

A market correction is when a major index like the S&P 500 falls 10% or more below it’s recent high. They happen on average once a year, but don’t always turn into bear markets (20% or more off of market highs) but that doesn’t mean they are comfortable.

Don’t Panic.

These are normal occurrences in the market. Although past performance is not a guarantee of future results, each and every time there’s been a market correction, there has been a recovery at some point down the road. We don’t know how long the pullback will last, and there’s usually something different causing the pullback (Dot.com bubble, mortgage crisis, Coronavirus, inflation etc.) but historically there has been a new market high set after the downturn.

Even if you are one, two or three years away from retirement and you can withstand the volatility, consider sticking to your investment plan you were OK with when things were calm. You may still have time to recover if you continue to invest in your 401k and other investment accounts, even in retirement. Just make sure to stay in contact with your financial planner to make sure your plan is still on track even if there’s a correction.

Continuing to add to your 401k might also give your retirement nest egg a nice bump when the market recovers. Dollar cost averaging, or adding the same amount to your accounts each month regardless of current prices, is a way to take advantage of the current market pullback. You’re buying more shares at lower costs and fewer shares at higher costs. This strategy seeks to bring your average price per share lower.

Re-evaluate your investments

Do you still like the investments you held before and after the market correction? Market corrections are a good reminder to take a look at your portfolio and make sure you still feel like your holdings are good investments, even if they are down around 10% from where they were a few weeks ago.

Over-weighted in Lockheed stock? It might be a good time to consider diversifying your 401k by moving funds to your other investments that might be selling at a lower price vs. where we were a few weeks ago.

Don’t try to time the market

The brightest minds on Wall Street attempt this all the time, and historically they are wrong. Don’t try to get out of the market and get back in after things normalize. Usually when you feel better about investing back into the market, it’s a lot higher than where you sold, and now you’ve really put yourself into a bind, selling low and buying high.

Missing the best days of a market recovery can be detrimental to your long-term financial plan so make sure you talk over your down-market strategy with your financial professional before it happens.

Invest for the long term

Yes, even if you are retiring tomorrow, invest for the long term. Unless you’ve got way more dough socked away for your retirement than you could ever spend, you’ll need to make sure your money lasts.

According to the Society of Actuaries, there is a 50% chance that at least one spouse of a 65 year-old couple will live to be 94 years old. If they both retired at 65, that’s almost 30 years of retirement income!

Check out In-service withdrawals

If you are like many Lockheed employees, a majority of your net worth might be sitting in your 401k and ESOP plan. If that’s the case, you might consider an in-service withdrawal. This allows you to rollover a portion of your retirement funds out of your 401k and into an IRA account – even though you are still working. An inservice-withdrawal might allow you a few additional investment choices in your IRA that are not available in your 401k plan. For more info, see this post.

Market corrections can be scary and uncomfortable – especially if you tend to watch your account regularly. If you’re worried about your long term-retirement outlook, feel free to shoot me an email at Brian@TheAeroAdvisor.com. I’d be glad to do a free, 100% no-obligation review of your current plan.

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.