Guide to safeguarding retirement savings from the market volatility

Volatility—characterized by rapid and significant fluctuations in financial asset prices—can pose a threat to those seeking stability and growth in their retirement savings. This is particularly pressing for individuals over 55, who face a shorter time horizon and less opportunity to recover from market downturns. 

Moreover, retirees must be cautious of other challenges, including losing control, improper asset allocation, emotional decision-making, and potential losses, especially in the early years of retirement. 

However, all is not lost. Older investors don’t have to succumb to market volatility but should take specific measures to mitigate these risks effectively. Here is a guide to protecting your retirement savings from the threat of volatility: 

1. Diversify your investment portfolio 

Diversification is key for minimizing the impact of market volatility on your savings. By distributing your investments across a variety of asset classes—such as stocks, bonds, index funds, and alternative investments (real estate, commodities, infrastructure, etc.)—you reduce the risk of substantial losses if one sector underperforms. This way, if stocks decline, other assets like bonds can help balance the impact, keeping your portfolio more stable. 

2. Adjust your risk level based on your age 

While you can feel just as vibrant at 60 as you do at 75, retirement planning involves important differences. Younger investors can often take on more risk due to their longer time horizon to recover from market downturns, as we explained earlier. However, as you near retirement, it’s wise to reduce exposure to volatile assets like stocks and shift towards more stable investments, such as high-quality bonds or fixed-income funds. A key principle of retirement planning is to adjust your risk level as you get older.

3. Build an emergency fund

A key step in safeguarding your savings is to avoid relying on them for unexpected expenses. Establishing a well-endowed emergency fund allows you to manage unforeseen costs, such as home repairs or medical emergencies, without having to dip into your retirement account during market downturns. Be sure to thoroughly evaluate all your retirement income sources and plan accordingly to ensure you have adequate coverage for unexpected needs.

4. Maintain a long-term perspective

Volatility can trigger panic and lead some investors to make impulsive decisions, such as selling assets during a market downturn. However, it’s important to remember that retirement investments are designed for the long term. Temporary market declines are generally not a cause for concern if you have a multi-decade investment horizon. Keep calm and avoid drastic moves. Often, markets recover over time.

5. Review and adjust your plan regularly

Markets evolve, and so do your personal circumstances. It’s important to periodically review your retirement plan to ensure it aligns with your goals and risk tolerance. Staying informed about market trends also allows you to capitalize on opportunities, such as selling well-performing assets to reinvest in those that have recently underperformed. Essentially, this involves the investor’s classic strategy: “buy low, sell high”.

6. Seek professional advice

A financial advisor can assist you in making necessary adjustments and keeping your strategy on course, even during volatile periods. They can be a valuable partner in ensuring a well-planned retirement. MAPFRE provides financial advisory services through MAPFRE Gestión Patrimonial, which works to make private banking services accessible and help clients achieve their financial goals.

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