When stock market volatility spikes, financial advisers typically remind investors they have time to keep the money invested and let it ride out the cycle, but what about people already in retirement?
As a whole, people in their 70s and beyond used to have very little invested in stocks, but that has changed in recent years due to low savings rates and longer life expectancy, said Kathryn Bruzas Hauer, a financial adviser in Aiken, S.C., and author of Financial Advice for Blue Collar America.
"Ten years ago, if you were in your 70s, you were in T-bills and bonds," she said. "Now, people are living longer, they're coming into retirement with pretty low balances and many of them don't have pensions."
To make up the difference, advisers have urged retirees to hold more stocks, which have proved to be a better inflation hedge than other asset classes over long periods of time.
Today, it's not uncommon for retirees in their 60s and 70s to have about 50 percent of their nest eggs invested in stocks in the hopes of beating inflation over the long run, she said.
And while many of them say they are comfortable with that risk level, the recent market plunges surely rattled more than a few.
Even the best-designed risk tolerance surveys can't replicate the real fear that comes when a portfolio takes a significant dip, Hauer said, so now is a good time to assess your own reaction to the recent market swings.
Here are four things for retirees to keep in mind:
1. Don't panic, but you can adjust.
"You're not married to your risk tolerance," Hauer said. By the same token, she advises clients to make tweaks to their asset allocation, perhaps adjusting stock levels by 20 percent or so, rather than going all in or out.