3 Steps to Protect Your Retirement Accounts, No Matter What Happens In the Stock Market

While the stock market is still thriving, some investors may be feeling wary about the future.

Spiking inflation could cause the Federal Reserve to shift its plans for interest rates in 2025, which could potentially affect the stock market. Coupled with increasing political tension and general anxiety about when the next downturn will begin, it's normal to feel uncertain about your investments.

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However, if you're nearing retirement age, there are some surefire steps you can take to better protect your nest egg.

1. Double-check your asset allocation

One of the most important moves you can make is ensuring your asset allocation -- which refers to how your investments are divided within your portfolio -- aligns with your age. Younger workers tend to invest more heavily in stocks, while those closer to retirement will generally shift more conservatively to bonds and other "safer" investments.

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If you still have a decade or two until retirement, you'll likely be able to ride out any market volatility in the near future. But if you're retiring in the next year or so, a market downturn could spell trouble if you're investing too heavily in stocks.

To be clear, even older workers will generally want to allocate at least a portion of their portfolios toward stocks, as that will help your savings continue to grow after you retire. However, shifting your investments toward the conservative side can lessen the impact of market turbulence.

Your exact asset allocation will depend on your risk tolerance and when you plan to retire. But a general rule of thumb is to subtract your age from 110, with the result being the percentage of your portfolio to allocate to stocks. So if you're 65 years old, for example, you might allocate 45% of your retirement fund to stocks and 55% to bonds or other conservative investments.

2. Beef up your emergency fund

Everyone needs a robust emergency fund, even those with plenty of savings in a retirement account. When the market takes a turn for the worse, stock prices fall. If you pull your money from your retirement fund after stock prices have dropped, you may end up selling those stocks for less than you paid for them -- locking in losses.

In general, then, it's wise to avoid withdrawing from your investments during a downturn. If you're already retired and actively using your savings, that may not be possible. But an emergency fund can help you keep more of your money in your retirement account, reducing the risk of selling your stocks at a loss.

3. Keep a long-term outlook

Market downturns are daunting, but they're also temporary. The average S&P 500 bear market since 1929 has lasted only 286 days, according to data from Bespoke Investment Group. By comparison, the average bull market has gone on for over 1,000 days.

^SPX data by YCharts

Even the longest bear markets, historically, have lasted for less than two years. While that doesn't mean we'll never face an unusually long downturn, the market's long-term potential is far more important than any short-term volatility.

One of the best things you can do, then, is simply stay the course and keep your focus on the future. If the market takes a turn, the next couple of years could be rough. But every single bear market in history has given way to a bull market, and the good times generally last far longer than the bad.

Nobody can say for certain when the next downturn will begin, or whether we'll even face one in 2025 at all. But by taking these steps now, you can better protect your financial future.

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