The stock market's historical returns When the market crash at the start of the Great Recession trashed everyone's retirement savings portfolios, many workers reacted by pulling out of the stock market and putting all their money into "safer" investments such as bonds. In reality, the stock market has enjoyed a positive return in 30 out of the last 35 years -- a fact that only 8% of Fidelity's survey-takers were aware of -- even though that time period has included multiple market crashes. Length of retirement When asked how long their retirement savings would need to last if they retired at age 65, 38% of Fidelity's survey respondents gave an answer of 12 to 17 years. So if you were to retire around age 65, you'd need to have enough money saved up to last you at least 30 years in order to have a reasonable chance of not outliving your money. If you underestimate how long your retirement is likely to last, as many survey respondents did, you're setting yourself up for financial disaster. There's no hard-and-fast answer to this question, but many respondents to the Fidelity survey believed they could safely take as much as 10% to 12% each year from their retirement savings accounts -- and that answer is dangerously wrong. Healthcare expenses Fidelity's most recent Retiree Healthcare Cost Estimate survey found that a 65-year-old couple retiring in 2016 could expect to pay $260,000 in healthcare expenses during retirement. Because healthcare is one of the few expenses that are likely to go up during retirement rather than down, budgeting for healthcare is a crucial part of retirement planning. Realistic retirement planning Acquainting yourself with the realities of retirement expenses, investment returns, and other financial basics will allow you to set up a retirement savings plan that will actually work for you when you hit retirement. That's why the expert financial planners and portfolio managers from Motley Fool Wealth Management have put together an exclusive video seminar on addressing our clients' biggest questions… Like what (and when) to sell in a bull market… to why all dividends aren't created equal… to the three critical questions you should be asking your financial advisor… This free video has you covered so you can weather the market in stride.
Since the market hit rock bottom about eight years ago, it has been steadily improving, and investors have seen skyrocketing stock prices and annual returns.
Unfortunately, those spectacular averages won’t last forever, and the investment pros have some pretty pessimistic predictions for the future.
Asset management company BlackRock, for example, claimed in its quarterly investment outlook report that U.S. stocks are expected to gain an annualized 5.9% over the next 10 years (compared to the estimated 12% return investors saw in 2016).
It’s perfectly normal for the stock market to bounce around like a roller coaster. But here’s the problem: According to a survey by BlackRock, 66% of investors believe future gains will be roughly equivalent to what they’ve seen in recent years, and 17% believe they’ll be even higher.
On top of that, many investors are holding a few flawed assumptions about how much they’ll actually need to retire. While 56% of investors believe they’ll have enough money to retire, 65% said they were unaware that expected returns are predicted to be far lower in the future than they’ve been in the past.
So what can you do to protect your retirement savings in the event that the market crashes?
1. Check that your investments are aligned with your risk tolerance
The worst thing you can do when you’re faced with the idea of a crash is to put all your money in high-risk, high-reward stocks. Volatile stocks are already risky enough (especially if you’re an older investor who has a lot to lose), but when combined with the fact that the market as a whole is expected to drop over the next several years, it becomes even riskier.
Also, you may already be investing relatively aggressively because the market has improved so much over the last eight years. You may need to rebalance your portfolio to ensure your investments are aligned with your risk tolerance, otherwise, you could stand to lose a…