Stocks Are Down. What Does That Mean for Retirement?

thebalancemoney.com:

Stocks are down, bonds are down, and as a result, retirement savings for young and old alike have taken a brutal hit—but experts say there are ways to get back on track.

Despite a month marked by gains, as of Monday’s close, the S&P 500 stock index was down 19% from its peak on Jan. 1.Retirement accounts, which tend to be heavily invested in stocks, especially for younger workers, are getting trampled. In the second quarter of the year, the average Fidelity 401(k) lost 20% of its value compared to the year before.To make matters worse, there was little safety to be found in bonds, the traditional refuge against stock market volatility, and the preferred asset for those closer to retirement. Popular bond mutual funds were down 12% or more on the year. 

It’s rare for bonds to fall this much at the same time as stocks. In fact, in the past, bond performance has buffered stock declines 97% of the time, according to Joe Duran, managing director and head of Goldman Sachs Personal Financial Management, who cited historical research by Goldman Sachs. The last time bonds fell this much at the same time as stocks was in the 1930s, he said.

Those declines—brought on by the Federal Reserve hiking interest rates to combat inflation— have only made retirement more challenging at a time when inflation is making the cost of living rapidly more expensive. Among current retirement savers, 42% said they were behind schedule in a survey conducted by Goldman Sachs Asset Management in August. Those close to retirement are facing tougher choices about how they will make ends meet without a paycheck coming in.

“When you have a portfolio, what does it mean to live on your savings?” Duran said. “And if the underlying savings are going down, and