How to Maximize Your Retirement Savings Amid a Volatile and Bearish Stock Market

Shape Charge/Getty Images

Shape Charge/Getty Images

Stock market investors got a double dose of horror ahead of Halloween as stocks swing wildly and volatile despite remaining in bear territory. Consider the October 13, 2022 session. As Markets Insider reported, the S&P 500 hit a 52-week low in intraday trading, fluctuated more than 5% during the session and closed up 2.6%.

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This kind of unpredictability makes saving for retirement particularly challenging. It also comes amid a major change in contribution limits for retirement plans.

On October 21, the IRS announced that it would increase the limit on 401(k)s, 403(b)s, most 457 plans, and the federal savings plan from $20,500 in 2022 to $22,500 a year will increase in 2023. The limit on annual contributions to an IRA will increase from $6,000 to $6,500 in 2023.

Catch-up contribution limits for workers age 50 and older will also be increased, increasing from $6,500 in 2022 to $7,500 in 2023.

The combination of a volatile stock market and new contribution rules means that you need to pay special attention to finding the right strategy to maximize your retirement savings.

Your first task is to take deep breaths and not panic. The average bear market recovers in three and a half years, according to the AARP. If you are a younger investor, you can invest regularly and still have plenty of time to recover. There is even an opportunity to buy cheaper stocks and watch them rise in value as markets move back into bull territory.

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Even if you’re 50 and planning to retire in 15 years, “Your best bet is putting money in your 401(k) or IRA at the same rate as you have now,” finance writer John Wagoner wrote in a blog for the AARP.

Sefa Mawuli, a certified financial planner at Pavlov Financial Planning in Arlington, Virginia, agrees.

“The key to the success of 401(k) is consistent and ongoing contributions,” Mawuli told CNN. “By continuing to contribute during down markets, investors can buy assets at cheaper prices, which can help your account recover faster after a market downturn.”

You might even consider increasing your contributions during a bear market if you haven’t exhausted them yet. This gives you the advantage of buying stocks at a discount and making a positive move even if your retirement account is shrinking in the short term.

You should also review your asset allocation and adjust accordingly. Depending on your age, this may mean temporarily reallocating your wealth in favor of lower-risk vehicles such as bonds or value stocks.

“As the market fluctuates, you may find that your portfolio may deviate from your original asset allocation goals and risk profile that supports your financial goals,” wrote Mark Phelps, CFA and director of manager research at Ameriprise Financial, in a blog. “As you review your portfolio, you may find that you need to rebalance, or you may find that no changes are necessary.”

In the meantime, the higher contribution limits coming into effect next year offer an opportunity to maximize your retirement savings, said Kelly LaVigne, vice president of consumer insights at Allianz Life.

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“While the current market downturn may have impacted retirement savings, the lower current price per share — combined with higher contribution amounts — could really help those who need to save more for retirement to either make up lost ground or to help prepare for rising costs and market volatility,” LaVigne told GOBankingRates in an email. “People aged 50 and older could also benefit from the increase in catch-up contributions for qualified plans.”

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Finally, keep the long term in mind and not the short term. As reported by SmartAsset, Fidelity recommends saving 10 times your annual salary for retirement by the age of 67. This gives you a retirement goal regardless of your current age.

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This article originally appeared on How to Maximize Your Retirement Savings Amidst a Volatile and Bearish Stock Market

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