How stock market volatility should influence your retirement planning

By Seth D. Harris - August 13, 2020

If you feel like the retirement savings you’ve invested in stock markets have taken you on a bone-rattling, hair-raising, heart-stopping roller coaster ride, you are right. As the coronavirus (or covid-19) pandemic spread across the world, American stock markets experienced the worst volatility in decades. 


“Volatility” describes a stock’s value changing quickly over a wide range. For example, a stock that opens at $128 on Monday morning, falls to $53 Monday afternoon, and closes that day at $100 is volatile. The Volatility Index, or VIX, measures the market’s expectations of stock price volatility during the next 30 days. Some people call it the “fear index” because it gives us some sense of stocks’ riskiness and the fear and stress that riskiness can cause investors. Think of it this way: the VIX puts numbers on the feelings you are experiencing as you watch the stock investments in your retirement portfolio flail wildly and fall.

On a scale of 100, with 0 illustrating no volatility and 100 showing absolute volatility, the VIX usually floats in a range between 10 and 25, often for years. Only very large and important economic events push it meaningfully higher. When the “dot com bubble” (i.e., overvaluation of new Internet-based businesses) burst, the VIX climbed to 27 on July 1, 2002. The finance-driven collapse of 2007 and 2008 drove the VIX over 62 on October 31, 2008. From 2012 to February 2020, the VIX again floated in its normal range between 10 and 25. On March 12, the VIX set a new record at 75 and, on March 16, it broke that record when it almost hit 83.

What did this period of epic market volatility and stunning stock market declines mean for your retirement? Some Americans have no retirement savings or retirement plan, so market volatility won’t make their difficult challenges any worse, or any better. Yet, market volatility will affect people who have retirement savings and a retirement plan: those saving in individual retirement accounts or an employer’s defined contribution plan (e.g., a 401(k) or 403(b)), or participating in a defined-benefit plan (i.e., a pension plan). The big difference is pension plan participants benefit from the involvement of professional investment managers who advise plan sponsors how to adjust portfolios to market trends. This discussion is for retirement planners who are making decisions on their own, hopefully in consultation with an experienced financial professional. 

Don’t Sell Your Stocks Now, If Possible

After a precipitous market collapse like the one we’ve just witnessed, you should try to avoid selling your stock investments right away. Selling when the market is low would lock in your.near-term losses — a common mistake among individual investors when stocks decline. You would also surrender potential future gains. It seems obvious, but your goal always should be to buy low and sell high. Selling after a market collapse risks the opposite. Wait until markets recover, if you can.

Of course, some individual stocks decline and never recover. If you own individual stocks, rather than stock funds, work with a financial professional on a strategy for those individual stocks.

One important factor influencing retirement planners’ decisions about whether and when to sell stock investments is how much time remains before they retire. I don’t mind telling you that I have lost more money in my stock investments over the last couple of months than I ever thought I would have. It’s frightening and frustrating, but not fatal to my retirement plans. That’s because I don’t plan to retire for another ten to thirteen years. My expectation is that the market will recover by then.

Why do I expect the market to recover? Because it always has, eventually. For example, the Standard & Poors 500 index — one stock market benchmark — hit its lowest point of the Great Recession in February 20091.  After a much deeper stock market decline than we have seen recently, and the slow economic recovery that followed, the S&P 500 index returned to pre-recession levels in early fall 2013. Most recoveries happened more quickly. So, based on this history, my stock investments should return to pre-pandemic values before I retire, and could be substantially more valuable.

Market Risk vs. Sequence-of-Return Risk

My situation highlights the difference between two retirement risks: “market risk” and “sequence-of-returns risk.” Market risk is the risk that investments’ value will decline at some point. We know it happens, often. But we also know that the S&P 500 index averaged better than 9 percent annual growth over the 90 years before the recent downturn2. So, an individual stock’s value may decline (or evaporate); however, stocks’ collective value generally rises over time. Sequence-of-returns risk, by contrast, is the risk that your investments’ value will decline right around when you retire. If that happens, and you sell your stock investments, it can affect your retirement savings and income for the rest of your life.

If you are not going to retire imminently, you have time to guard against sequence-of-return risk. You might consider buying an annuity* that includes an income or withdrawal guarantee. Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.  Guarantees are backed by the claims paying ability of the issuing insurance company.  Annuities can provide reliable and regular retirement checks that last for the rest of your life. Speak with your financial professional about annuities and sequence-of-returns risk.

"No one strategy is right for everybody. If you have resources during these difficult times, don’t create a long-term problem with a short-term, impulsive choice."

If You Planned to Retire This Year

If you planned to retire in 2020, and your retirement portfolio took a sizable hit like mine, there is no question that your choices are more difficult. Again, you want to avoid selling your stock investments until the markets recover or, at least, minimize how much you must sell.

If you can, postpone your retirement. Waiting would give your retirement stock investments a chance to recover, which could mean more savings and income during your retirement that should last for a longer period of time. Delaying retirement is also good for reasons unrelated to stocks. For example, your monthly Social Security benefits will be higher for the rest of your life if you retire at 67 rather than 62, and even higher if you wait until 70. Also, continuing to earn a wage or salary means you won’t have to tap your retirement savings for living expenses, so your retirement income can continue to grow thus lasting longer.

If you can’t wait to retire because of health, family, or other pressing reasons, figure out whether you can pay your basic living expenses without touching your stock investments. Look at your expected Social Security benefits and other sources of retirement income, like a pension or annuity. Will they cover your mortgage or rent, your utilities, and your grocery and transportation bills --- your “must haves” as opposed to your “want to haves”? If not, assess whether you have non-stock assets that you might liquidate without losing too much money and disrupting your life (e.g., don’t start by selling your house). Do you own bonds or a bond fund, for example, that you could sell? Since interest rates are very low, homeowners also could shop for low-cost home equity loans to tide them over for a short while.

The Internal Revenue Service forces people who are age 72 or older to make "required minimum distributions" from their retirement accounts — that is, withdrawals of a portion of your savings from retirement accounts so that it can be taxed. Apply the same general principle to your RMDs: try not to cash out stock investments if there are alternatives that will allow you to withdraw the legally mandated minimum amount. Then, try to live off those funds and the other sources of retirement income until the value of your stock investments recovers.

Even those who must retire or can postpone retirement for a short while should consider an annuity to guard against any further sequence-of-return risk. Immediate annuities allow you to begin your protected lifetime income immediately, and deferred annuities allow you to start your monthly checks after you have been retired for a number of years. Other types of annuities — variable annuities and fixed index annuities, among others — can provide you with protection against market risk and sequence-of-return risk while still offering you the opportunity to invest in stocks or other investment vehicles. The principal value of the variable annuity will fluctuate based on the performance of the underlying investment options and may lose value.

No one strategy is right for everybody — except stopping yourself from acting precipitously. If you have resources during these difficult times, don’t create a long-term problem with a short-term, impulsive choice. You can make it through this volatility, start by getting some expert advice, and preserve the retirement you’ve planned.




1 “S&P 500 Index - 90 Year Historical Chart,”, April 2020

2 "Compound Annual Growth Rate (Annualized Return),”, April 2020

*What is an annuity?

Annuities are long-term, tax-deferred investments designed for retirement. Variable annuities involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59 ½.

Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term investments designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 59½. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.

Investing involves risk including possible loss of principal. 

The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.


About the author

Seth D. Harris, Former Acting U.S. Secretary of Labor, Attorney at Seth D. Harris | Law & Policy

Seth D. Harris is a nationally recognized expert in labor, employment and retirement law and policy. He is an attorney in Washington D.C. and a Visiting Professor at Cornell University's Institute for Public Affairs. He also served as Acting U.S. Secretary of Labor for the Clinton Administration, and Deputy U.S. Secretary of Labor from 2009-2014.


Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, annuities are issued by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Variable products are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact the Company for more information.

Jackson® is the marketing name for Jackson National Life Insurance Company® and Jackson National Life Insurance Company of New York®. Jackson National Life Distributors LLC.

Tom Hurley and Phil Wright are affiliated with Jackson. All other authors are not affiliated with Jackson.