Should Retirees Pull Their Money Out of the Stock Market in 2026?

If you're a retiree who's invested in the stock market, you may be worried about remaining invested in 2026. The S&P 500 has been hitting record highs this year, expensive tech stocks continue to rise higher, the economy doesn't look to be doing too well, and on top of it all, there may be a big change in who's running the Federal Reserve next year. All in all, it can make for a troubling picture, one that may suggest a crash is coming.

The natural question at this stage may be whether to simply pull your money out of the stock market and put it in your bank account, where you know it will be safe. While that might be the way to eliminate your risk, is that really the best decision to make for your finances in the new year?

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Reducing risk, not eliminating it, should be a goal for all investors in 2026

All investors, not just those who are in or nearing retirement, should be taking some time right now to consider the stocks in their portfolios. Even if you're not worried about a market crash, it's always a good idea to evaluate your holdings periodically, and to identify where there are opportunities to reduce risk.

Simply taking all your money out of the market can result in missing out on gains if the market doesn't crash as you might expect it to. Crashes can come without a whole lot of warning. Even if valuations are high, there's no way to know whether a correction or crash will come in a few weeks, months, or years.

That's why taking efforts to reduce your risk, such as pivoting out of expensive stocks and into more modestly valued investments, can be the better and safer approach. Investing in blue chip stocks that might be less vulnerable to a crash is an example of how you can reduce risk. This can include selling Costco Wholesale, which trades at a price-to-earnings (P/E) multiple of nearly 50, and buying Home Depot instead, which trades at a P/E of just 24. Both are blue chip stocks in retail, but one is drastically less expensive than the other.

An even better strategy may be to focus on income-generating ETFs

If you're not comfortable with picking individual stocks or simply don't have the time to do so, it may be easier to invest in a quality exchange-traded fund (ETF) that offers a solid yield. You can get some strong diversification and generate some dividend income along the way.

An ETF that can be ideal for this purpose is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It yields 3.7%, which is more than triple the S&P 500 average of 1.2%. Not only does it offer an attractive payout, but the fund's expense ratio is just 0.06%, making it one of the best low-cost options for income investors.

There are about 100 stocks in the fund, and they are fairly reasonably priced as the ETF averages a P/E ratio of just 16, which is less than the S&P 500 average of 25. There's a good mix of stocks from various sectors in the ETF, including energy, consumer staples, healthcare, industrials, financials, and others.

While the portfolio isn't full of flashy stocks, there are solid dividend stocks within the fund, including Coca-Cola, Chevron, and Bristol Myers Squibb. These are the types of stocks that can provide investors with some good safety, stability, and recurring dividend income.

There are other ETFs and dividend investments you may want to consider as well. But keeping your money in the stock market and simply reducing your risk can be a better move for your portfolio than simply pulling out, whether you're in retirement or not.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Costco Wholesale, and Home Depot. The Motley Fool has a disclosure policy.