From The Motley Fool · The Premium Team · · 1m
Retiring Soon? Don’t Let a Correction Derail You
Retirees can avoid market drops by using cash cushions and smart withdrawal strategies.
In brief
Retirees can avoid market drops by using cash cushions and smart withdrawal strategies. Retirees should build a cash cushion to avoid selling stocks during market corrections. Originally reported by The Motley Fool.
Market Drop Impact
Thursday's 5.5% Nasdaq drop affected retirees differently than long-term investors.
Retirement Withdrawal Challenge
Spending from savings after decades of growth can feel like failure to retirees.
“After decades of watching the balance grow, spending from it can feel like failure”
Sequence-of-Returns Risk
Early market drops force retirees to sell at low prices, missing recovery gains.
Risk Tolerance vs Capacity
Retirees should prioritize financial capacity over risk tolerance for near-term needs.
Cash Cushion Strategy
Keep three to five years' planned withdrawals in cash or short-term bonds during market drops.
Withdrawal Order Rules
Take RMDs first, then taxable accounts, then traditional retirement accounts before Roths.
RMD Flexibility Options
Move IRA shares 'in kind' to taxable accounts or use qualified charitable distributions for RMDs.
The key point
Retirees should build a cash cushion to avoid selling stocks during market corrections.
