Bearing Through a Bear Market

Inflation is up, the stock market is down and your 401(k) is feeling every bit of that stretch. So how do you keep calm and hold steady when everything around you is spinning out of control? 

Retirement is all about the long game. It can be hard to remember that when you keep getting news alerts about a bad economy. To be sure, the market is in a downturn right now. The Consumer Price Index measured 8.6% inflation year-over-year at the end of May – the largest 12-month increase since December 1981, according to the U.S. Bureau of Labor Statistics. The S&P 500 officially entered bear market territory in mid-June. Those are hard realities if you were planning to retire in the next year or two.

Seize the Opportunity

The first trick to keeping your bearings amid a storm of bad news is to see it as an opportunity. Stocks are effectively on fire sale right now. I had this very discussion with a funeral director at OGR's conference in May. He was concerned, asking me, “Should I stop putting money in? Or should I be changing my investments?” Absolutely not. Look at down markets as an opportunity to buy more of the funds you want. If the fund at its peak costs $20 a share, you’ll get 10 shares for $200. When the market goes down and that same fund drops to $15 a share, now you're collecting 13 1/3 shares into your account for the same $200 investment. If it goes down even more like we saw in the 2007-08 market, you could buy twice as many shares as normal. Then as the market comes back up, you have more shares you purchased at the lower price and you really start to reap the rewards.

Be sure to take advantage of your employer-sponsored retirement plans and maximize any matching programs. If your company matches your own retirement contributions up to the first 6% of your income and you’re only putting in 3%, you’re leaving thousands of dollars in free money on the table. (If 6% has ever seemed like an odd number to you, it may seem less random when you remember that most financial advisors recommend investing 10-15% of your gross income into retirement. If you put in 6% and get a full 6% match, you’re squarely in the middle of that recommendation.)

Nearing Your Goal

If you’re among those hoping to retire soon, remember first and foremost that even though your 401(k) is through your employer, it is still an individual plan. Your company is not directing how your money is invested, even if they’re contributing to it. Your financial management company doesn’t direct how your money is invested, either. You pick which fund(s) you want to invest in and they execute your orders. 

Your portfolio should automatically be aligning with less volatile stocks as you get closer to retirement. If you login to your account and see any causes for concern, be sure to reach out to your plan manager with any questions.

If you feel yourself getting antsy and wanting to take your money out of the markets, remember that any withdrawals before you turn 59 ½ years old automatically come with a 10% additional tax penalty. Add on the normal taxes you have to pay on any withdrawal from a pre-tax plan like traditional 401(k)s, and you could easily get only 60-70% of what you think you’re taking out.

As you get within a year or two of retirement, you may want to start moving some of your money out of risky investments and into cash. You want enough liquid cash ready to go ahead of those down times instead of having to sell your valuable assets after the downturn sets in when you'll only get a fraction of what you paid for them. There have only been five bear markets in the past 45 years, but each has lasted roughly 15 months so it's good to have 18 months of living expenses on-hand once in retirement.

Again, you want to do this when the market is *not* down as it is now. If you can afford to keep yourself fully invested for another year or two to give the markets a chance to bounce back, you will be better in the long run. Even after you enter retirement, I still recommend you keep some amount of money in stocks to help make sure you don’t outlive your money.

Leading From the Top

To any funeral home owners out there, make sure you are offering a retirement program for your employees, including a company match. The job market is too competitive right now not to have a benefit like this. 

If you don’t have a program at all, they are much easier to get off the ground than you may think. There is a form you need to fill out with the IRS every year but many financial management companies, including Access Financial, will fill that form out for you so all you have to do is sign it and send it in to the IRS. There are also some tests and monitoring that need to be done to keep in IRS compliance, but again, that is something that can be done by your financial management team.

Retirement plans are also a great way to increase your employees’ overall compensation package in a way that lowers your own tax burden: Company matches for employee retirement plans are deductible for the corporation as a business expense.

Funeral directors are intimately aware of how important it is for the families they serve to prepare for their death and engage in pre-planning. The same is true for your retirement: you can’t afford to wait. Start now.

This message was originally published in the Summer 2022 issue of The Independent® magazineClick here to read the entire issue.

Chris Chigas has been helping funeral directors and small businesses be more successful with their retirement planning for more than 30 years. He is the president of Access Financial Group, a registered investment advisor and holds many securities licenses.


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