Should You Move Your Retirement Funds Out of the Stock Market?

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Earlier this week, stocks took a free fall. The Dow plunged almost 1,600 points, the worst decline in history in a trading day. At the time of this writing, the stock market had recovered about half the losses. But did that alarming drop make you baby boomers wonder if you need to stay invested in the stock market?

If so, the short answer is that it is dependent upon your age.

The good news: Younger baby boomers don’t have reason to fret about the correction, says Kyle Woodley, senior investing editor at Kiplinger.com. Bear in mind, the 2008 stock market crash had a recovery period of six years.

“If you are between 50 and 60, there is still time to recover,” Woodley says in a MarketWatch article, At What Age Should You Be Most Worried About a Stock Market Downturn? “Fifty years ago, life expectancy was much lower. You are not investing for the next 5 or 10 years, you’re investing for another 20. You’ve got room to grow your nest egg and take part in that growth. Half a century ago, you’d have been in two-thirds bonds in your 50s. That’s not true anymore.”

Financial guru Suze Orman agrees. “If you are saving for retirement or a different goal that’s 10 or more years away in the long run, you should be happy stock prices are down,” she says. “When stock prices are lower, your money buys more shares. Then you own more stocks for when stock prices ”

1 rule of thumb for your retirement money you may consider is to keep your age in safe investments, ” she adds. “So if you’re 60 you may have as much as 60% in CDs or short-term Treasuries, and the remainder can stick with stocks.”

Keep in mind, because the market has jumped the past eight years, you may need to reevaluate your retirement portfolio to ensure your investments are aligned with your risk tolerance. Otherwise, you could lose a lot more money if the market crashes.

What if you’re older and intend to retire in the next five years – or maybe you’re already retired and drawing from your retirement funds?

Some older boomers may have more reason to worry: Jared Snider, senior wealth adviser at Exencial Wealth Advisors in Oklahoma City, says your risk depends on how well you’ve prepared for a recession. “Those folks who have not prepared are impacted by it. It can do irreparable harm. They sell out of fear or out of necessity because they don’t have any other assets to liquidate.”

Experts generally agree that you shouldn’t invest anything you’ll need over the next five decades. That way you’ll avoid pulling out all your money during a market downturn which historically has always come back up again.

“If the market crashes, you ought to have the ability to ride out the storm rather than selling everything in a panic,” writes Katie Brockman in a CNN Money article, How to Protect Your Retirement Savings from a Crash. “By only investing money that you know you won’t need for at least five years, it is going to be easier for you to leave those savings untouched until the market recovers.”

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