Q: The stock market decline has me feeling very nervous about my retirement savings. I'm looking at retirement in 10 years, and I've done a pretty good job of saving for it--but now the stock market is giving back a lot of those savings. All of a sudden, savings accounts are looking much more attractive at 1 percent. How much of my retirement money do you think I should put into conservative things like that?
A: The violence of the recent stock market declines are unsettling, and as you approach retirement, it certainly makes sense to gradually transfer more of your savings into conservative vehicles. However, don't completely turn your back on stocks, for the following reasons:
- As you point out, savings accounts won't earn you much more than 1 percent these days--and those are the best savings accounts. Money market accounts are at a similar level, and you won't get a whole lot more for locking into a long-term CD. The question you have to ask yourself is whether you can meet your retirement goals with virtually no investment earnings.
- Another problem with those low CD, savings, and money market rates is that they are below the rate of inflation. Without some growth component to your portfolio, you'd be looking at a steadily deteriorating standard of living in retirement if you can't keep up with inflation.
- Remember that retirement is not a finish line. With any luck, you'll live for 20 or 30 years after retirement. So, if you are 10 years away from retirement now, that means you actually have a total time frame of 30 years or more. That gives you more time to ride out the market's current volatility.
The bottom line is, don't exacerbate the market's volatility by making extreme moves yourself.
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