Navigating Retirement Savings in a Down Market: Expert Tips to Protect and Grow Your Nest Egg

The stock market’s recent downturn, with the S&P 500 falling nearly 10% from its peak, has understandably rattled many nearing or already in retirement. With recessionary fears lingering, the once-comfortable balance in your retirement account may now seem precarious. This is not the time for complacency; it’s a time for proactive strategies.

While the situation may seem daunting, there are proven methods to bolster your retirement savings even in a depressed financial market and avoid depleting them prematurely. Experts offer several actionable tips to navigate these turbulent times.

1. Maximize Tax-Advantaged Retirement Accounts

If you’re fortunate enough to have the financial means, consider maximizing your contributions to tax-advantaged retirement accounts like 401(k)s, IRAs, and HSAs. These accounts offer significant tax benefits, making them powerful tools for wealth accumulation.

• 401(k)s: The 401(k) provides a substantial contribution limit, set at $23,500 in 2025. If you’re approaching retirement, strive to contribute as much as you can afford, ideally up to the limit.
• Catch-Up Contributions: For those aged 50 and over, "catch-up contributions" allow even greater savings, increasing the 401(k) limit to $31,000. The SECURE 2.0 Act further benefits individuals aged 60-63 with an even higher catch-up limit of $34,750. Maria Bruno, a senior financial planning strategist at Vanguard, emphasizes the significance of these catch-up contributions, which can significantly impact your retirement savings.
• IRAs: While Individual Retirement Account contribution limits are lower at $7,000, or $8,000 for those 50 and older, they still offer valuable tax advantages.
• HSAs: A Health Savings Account (HSA) presents another opportunity to build retirement savings, particularly if you have a high-deductible health plan. The annual limit for a family in 2025 is $8,550, with an additional $1,000 contribution allowed for those over 55. Unspent HSA funds can be carried over year after year, ideally viewed as a long-term retirement investment.

It’s important to remember that retirement savings continue to grow even after you retire. Consider your savings as an investment that will grow "through" retirement, not just "to" retirement. If you retire at 65 and live to 85, your savings can potentially accrue interest for another 20 years or more.

2. Embrace the Discount: Buy Low in a Depressed Market

For long-term retirement savers, a down market presents a unique opportunity to purchase stocks at discounted prices. When the market is down, the price of stocks are lower.

Automating your retirement contributions is a powerful strategy to maintain consistent buying through the downturn. Michelle Crumm, a certified financial planner, underscores the importance of automation in removing emotion from investing and ensuring consistency. Without automatic contributions, you risk missing out on the opportunity to acquire equities at lower prices. It’s a fact that many people tend to "freeze" when markets decline.

3. Consider Delaying Retirement

While the prospect of delaying retirement may be unappealing, even a short postponement can significantly impact your retirement savings.

A Stanford University study revealed that delaying retirement by just three to six months can have the same positive effect on retirement savings as increasing your 401(k) contribution rate by a full percentage point for 30 years.

Delaying retirement for a year allows you to continue earning income, potentially maxing out retirement savings, and avoiding drawing down on your existing savings, thus extending their longevity. As Bruno points out, this strategy ensures continued income and savings while delaying portfolio withdrawals.

Staying employed is particularly beneficial in a down market, as it prevents the need to tap into your retirement savings when their value is diminished.

If the prospect of full-time work is daunting, consider transitioning to part-time employment. This approach allows your nest egg to take a less significant hit in the early years of retirement while providing greater flexibility to pursue personal interests.

4. Build a Cash Cushion

As your retirement date approaches, having readily accessible cash becomes crucial. Retirement experts recommend accumulating at least one year’s worth of living expenses in cash or cash-equivalent accounts, such as high-yield savings or money market funds.

These funds will serve as your initial source of income during retirement, replacing your regular paycheck. A cash cushion is particularly vital during market downturns, allowing you to avoid selling investments at depressed prices. Heather Winston, head of product strategy at Principal Financial Group, emphasizes the importance of this cash reserve in generating your new retirement paychecks.

5. Prioritize Saving Over Spending

Shifting your focus from spending to saving is a fundamental strategy for strengthening your retirement savings.

Start by categorizing your expenses into essential and non-essential categories. Niv Persaud, a certified financial planner, suggests pausing spending on non-essential items, even if it means requiring adult children to cover their own expenses. Redirect the funds saved from non-essential spending towards your retirement savings.

Explore additional avenues for reducing expenses. Refinancing insurance, downsizing subscriptions, and paying off high-interest debt can all contribute to lowering your overall expenses. These small adjustments can significantly reduce the income you’ll need in retirement, enabling you to withdraw less from your investments during market downturns and providing your portfolio with more time to recover.

6. Delay Social Security Benefits

Delaying your Social Security benefits can result in a larger monthly check. Your benefit amount increases with each year you wait, from age 62 to 70.

Delaying Social Security can serve as a form of longevity insurance, providing a larger guaranteed income stream, especially if your investment portfolio’s growth is temporarily stalled. The larger check is very helpful during the market downturn.

These expert tips offer a comprehensive guide to navigating retirement savings in a down market. By implementing these strategies, you can protect your existing savings, continue to grow your nest egg, and secure a more comfortable and fulfilling retirement. Remember, proactive planning and informed decision-making are key to weathering the storm and achieving your retirement goals.