Three Ways to Protect Your Retirement Savings from an Economic Slowdown in 2013
For most investors, the financial crisis of 2008 has taken a heavy toll on their portfolios. Many Americans saw their retirement savings wiped out because of the market downturn. No matter where you looked, the returns were in the negative. For example, the S&P 500 and other major key stock indices in the U.S. economy fell by more than 50% from their highs.
How bad was it for the U.S. economy? The financial crisis and the recession following it were considered to be the worst economic downturn faced by the U.S. economy since the Great Depression of the 1930s. To give you some idea of how bad the U.S. economy has become since, consider that in January of 2009, nearly 32 million people were on food stamps. Now the number sits around 47.7 million. (Source: “Supplemental Nutrition Assistance Program,” U.S. Department of Agriculture, December 7, 2012.) Food stamp use has increased by more than 49%!
If this wasn’t all, from 2010 to 2011, the median household income in the U.S. economy fell 1.5% to $50,054, and the country’s poverty rate was 15%—that’s 46.2 million people under the poverty line—a number that has increased for three years. (Source: “Income, Poverty and Health Insurance Coverage in the United States: 2011,” United States Census Bureau, September 12, 2012.) Almost one in seven Americans is living in poverty!
In addition to all of this, analysts are now expecting the U.S. economy to head into another recession in 2013 if things don’t get in order—the fiscal cliff, national debt, and unemployment.
Those who are saving for their retirement should ask themselves a question: are my retirement savings protected from another market downturn? What holds true is that downturns in the markets are normal, but they can certainly damage portfolios and diminish savings.
There are a few ways a person who is saving for retirement can protect him or herself from the upcoming slowdown in the U.S. economy.
1. Review Your Retirement Plan
Retirement planning changes as time passes—a lot can change over the years. Keep in mind that retirement planning is an ongoing process, and it continues until the person actually retires.
Reviewing their retirement plan gives a person an idea about where they stand and what kind of actions they should take. In an ideal situation, it would be wise to check investments at least on a monthly basis, but an extensive review at the end of the year can also be beneficial.
This way, a person can plan for upcoming years and learn what worked for them and what didn’t.
2. Know the State of the Economy
You don’t have to be a math genius to figure out current economic conditions. As the economy gets worse, the retirement savings and investments become vulnerable. Why? Consider this: if the U.S. economy experiences a slowdown, what happens to businesses? They will earn lower profit. This will trickle down, and eventually, the stock market will see its effects.
Knowing the state of the economy can be beneficial, because you can sometimes anticipate how the markets will react, and you can park your money accordingly.
3. Be Disciplined
Often, people jeopardize their retirement savings by doing nothing about their losses. For example, if you bought a stock in your retirement account, and it plunges more than 50%, would you hold it or sell it? Most would just keep the loss and hope it will increase. Sadly, if a stock has gone down 50%, it will have to double for you to only break even—never mind making any profit.
Discipline comes into play in this situation, because when a person is keeping a loss, he or she is simply missing out on other opportunities.