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A soon-to-be retiree’s guide to a crazy market

Feb. 11, 2016 CNN Money

You’ve heard that before. But it’s hard to sit tight during a market freakout if you’re closing in on retirement. Losing a big chunk of your savings now could be devastating.

Retirees should avoid drawing from investments (in other words, selling stocks) when the market is down. It’s the same golden rule you’ve followed all along, but it gets trickier once you need to use the money in your nest egg — and have fewer years for your investments to bounce back.

If you’re not retired yet, there is a way to weatherproof your nest egg from a future market downturn: Make sure you have a steady flow of money coming in each month to cover your essentials — that doesn’t come from your investments.

“Your anxiety level will go way down if you know you can pay for the groceries whether stocks go up or down,” said Dan Keady, director of financial planning at TIAA-CREF.

Where will your steady income come from?

First, use up your Social Security check. This should be easy since it comes to you automatically each month.

If you’re lucky enough to get a pension benefit, use that next.

Now, for the remainder of your essential costs, Keady suggests buying an annuity. This is like an insurance policy that will send you a monthly check for the rest of your life. More on annuities in a second.

Other advisers, like certified financial planner Mark Beaver, say the rest could come from cash you set aside.

How much will you need?

This isn’t for vacations or a new car. It’s for essentials like your mortgage or rent, insurance, utilities, groceries, transportation and any required debt payments.

A good way to figure out exactly what you’ll need is to make a retirement budget, using your best guesses of where you intend to live in retirement and what type of lifestyle you want to lead. Will you downsize your home? Move to a lower-cost area? Have debts paid off?

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