Our tube TV wouldn’t die. We were late to the flat-screen TV phase of entertainment because we had a perfectly good tube TV that wouldn’t quit, and the financial guy in me couldn’t justify replacing it. Everyone in the family wanted a flat screen, but our old TV wouldn’t die. I think my kids even prayed for it to quit working, but we wanted them to understand that a flat-screen TV was a want, not a need. Unfortunately, this market is making investors think about “wants” as well.
With the market down, retirees dreaming about RVs and exotic vacations are trying to decide if those are needs or wants. Because cashing out of stocks in a down market can significantly harm a portfolio.
Selling your shares when values are dropping creates two problems for retirees. First, you must sell more shares than usual to get the same amount of cash that you would have when the market was higher. Second, selling more shares than usual limits your ability to take advantage of the next market rally.
I suggest avoiding unnecessary withdrawals from your retirement accounts while the market is so volatile. There’s no perfect approach to taking retirement income during a downturn, but here are a few ways to lessen the damage when you need to take a distribution.
- If you must take money out of the market, take as little as possible.
- Withdraw your cash savings first before selling stock shares.
- Cash out a certificate of deposit (CD) or maturing bonds because you only pay taxes on the interest.
- Withdraw only dividends and interest from your accounts instead of liquidating shares.
- If you have an annuity with an Income Rider, you can start the payout phase of your annuity.
- If you must sell stock shares, use the loss to offset gains through tax-loss harvesting. This is helpful since gains from investments held a year or longer are taxed as capital gains instead of ordinary income.
The real question is, do you need the money from that large withdrawal right now, or could it wait a little while? If you don’t need the cash right now, maybe you should wait and see how the year finishes. Not often does a negative 25% stock market during the middle of the year finish the year down that much.
It was a joyous day when the color finally went out on the TV. We immediately bought two flat screens! Though delayed, we got the “want” and taught our kids a valuable financial lesson. Hopefully, the market will turn, and you will get your “wants” soon.
Have a blessed week!
2760 East Sunshine St. Springfield, MO 65804
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. There can be no guarantee that the promoted strategies will succeed.