How to Handle Stock Market Ups and Downs as You Near Retirement

As people get closer to retirement, they start thinking a lot more about their money. Lately, we’ve been talking to many folks who share three big worries:

1. The stock market and whether it will go up or down
2. The future of Social Security
3. How to pay for health insurance

These are all important topics, but today, we’re going to focus on the stock market. If you’ve been keeping up with the news, you know that the stock market has been on a rollercoaster ride. That can be scary—especially if you’re planning to retire soon.

So, should you be worried? The short answer: It depends. But don’t worry, we’ll break it all down for you.

How to Handle Stock Market Ups and Downs As You Near Retirement

Stock Market Swings: A Normal Part of Investing

One thing you need to know right away is that the stock market is always moving up and down. That’s just how it works. In fact, these ups and downs—called market volatility—are actually normal. It might not feel great when the market drops, but history has shown that it always bounces back.

For example, we’ve just had two years in a row where major stock indexes rose by 20%. The last time that happened was in 1998 and 1999. But does that mean the market will keep going up? Not necessarily.

One way we measure whether stocks are expensive or cheap is something called the price-to-earnings ratio (P/E ratio). Right now, that number is around 21.5 times, which is close to what some experts call a "red alert" level. This means stocks might be expensive compared to their earnings, which could lead to a downturn.

But remember, downturns are temporary. The market has always recovered and reached new highs over time.

Why Does the Stock Market Move So Much?

Many things can cause the stock market to go up or down. Here are a few big ones:

1. Trade Wars and Tariffs

When countries put taxes on each other’s goods (called tariffs), it can hurt businesses and slow down the economy. If businesses struggle, stock prices can fall.

2. Government Layoffs and Budget Cuts

If the government cuts jobs, especially in areas where lots of people work for the government (like our local region), it can cause concerns about the economy.

3. Interest Rates and Inflation

The Federal Reserve controls interest rates, which affect how expensive it is to borrow money. Right now, inflation is still running a little high, and interest rates are higher than usual. This can slow down economic growth and impact the stock market.

4. Human Emotion and Herd Mentality

Believe it or not, human behavior plays a huge role in the stock market. When people panic and start selling their stocks, prices drop. When everyone feels confident and starts buying, prices go up. This “herd mentality” can make the market more unpredictable.

What Experts Predict for the Next 10 Years

No one can predict the future, but big investment firms like Vanguard, JP Morgan, and BlackRock make educated guesses. Recently, these firms shared their stock market return expectations for the next decade:

• Expected stock market returns: 3% to 7% per year
• Expected bond returns: 4% to 5% per year

This means the next decade might not be as strong as some of the great years we’ve seen before. Historically, when markets have had decades of lower returns, they’ve also had more negative years mixed in.

For example, since World War II, there have been 10 different decades where the stock market returned between 3% and 7% per year. On average, during those times:

• There were three bad years per decade
• In those bad years, the market dropped about 15% on average
• The good years made up for the bad, with an average gain of 17%

So, if we’re in for a lower-return decade, expect some ups and downs along the way.

How to Prepare for Market Volatility in Retirement

Now that we know the stock market might be choppy, how can you prepare? Here are a few key steps to take:

1. Manage Your Cash Flow

Think of your household like a business. The number one rule in business? Cash flow is king.

• If you spend more than you bring in, you could run out of money faster than expected.
• If the market has a bad year, it’s smart to cut back on extra spending.
• A good plan includes knowing how much money you need for basics like housing, food, and medical care—and how much you want for extras like vacations and hobbies.

2. Be Flexible with Big Expenses

One way to protect your retirement money is to be flexible with major purchases.

• If the stock market is doing great, that might be a good time to take that big trip.
• If the market is down, maybe hold off on big expenses for a year or two.
• Having a flexible mindset can help your money last longer.

3. Reduce Risk in Your Portfolio

The stock market is risky, but you can control how much risk you take.

• If you’re still working, you might be able to handle more risk because you have time for the market to recover.
• If you’re retired or close to retiring, it may be smart to invest a little more in bonds and cash so you have stable money to use when stocks drop.
• One mistake people make is selling when the market is down. If you have a plan in place, you won’t have to panic when stocks take a hit.

4. Stick to a Plan That Matches Your Goals

At the end of the day, your financial plan should fit your life.

• If your goal is to retire comfortably, your investments should be set up to make that happen.
• If you don’t like big risks, your portfolio should reflect that.
• If you want growth but can handle some ups and downs, your plan should take that into account.
• Good investing is about sticking to the plan—not reacting emotionally every time the market moves.

Final Thoughts: Volatility is Normal, But Planning Helps

If you remember one thing from this article, let it be this:

👉 Volatility is a feature, not a bug, of investing in stocks.

That means the stock market will always go up and down, but that doesn’t mean you can’t navigate it successfully.

The key is to:

✅ Have a plan for your retirement income
✅ Stay flexible with your spending
✅ Reduce risk when needed
✅ Stick to your long-term goals

By doing this, you’ll be able to weather the ups and downs and enjoy a comfortable retirement.