As stocks continue to tumble, retirement savers are wondering what they can do to protect their portfolios and make the most of this bear market. While it’s easy to get nervous during volatile times like these, it’s important to remember that the market isn’t going anywhere anytime soon. With the right strategy, you can use this bear market to your advantage as a retirement saver and get yourself in position to come out of this downturn in better shape than ever before. Here are three ways retirement savers can take advantage of this bear market.

Invest and save more

One of the best things you can do during a bear market is keep investing and saving. This may seem counterintuitive, but bear markets present an opportunity to buy low and sell high. When everyone else is selling, you have the chance to scoop up great deals on investments. And if you keep saving, you’ll be able to take advantage of compound interest and make your money grow even ore.

The market puts stocks on sale when prices are low, so it’s time for a shopping spree. Warren Buffett, an American businessman and philanthropist, said in his 2009 letter to Berkshire Hathaway shareholders, “When it’s raining gold, reach for a bucket, not a thimble.”
Any drop in the market can potentially boost the return on your investments in the long-term, especially if you have a long-term time horizon. Using that knowledge, you can reassure investors that putting money to work now is a wise choice.

Tax-loss Harvesting

When the stock market is down, some investors choose to sell their losing investments in order to realize the losses and offset any gains they may have elsewhere. This is called tax-loss harvesting, and it can be a great way to minimize your taxes while still getting the most out of your investment portfolio.

Many of the investments you made in 2021 or earlier in 2022 are being reported as losses on paper. Even though the market as a whole is down 20% from its high point at the start of the year, some stocks are down much more. If you are fortunate enough to own shares of those companies, now might be a good time to liquidate them for the loss.

Losses from one investment can be offset by capital gains in other investments. In other words, if you don’t have any gains this year, you can apply up to $3,000 of your regular income towards this requirement. Future losses not to exceed current year losses will be carried forward for later years.

Keeping all of this in mind, there are a few things to consider. Securities cannot be sold and repurchased immediately. The rule wash-sale prohibits the trading of securities at a loss if an identically related securities is acquired within a 30-day time frame. However, you can also purchase a stock in the same sector or with similar characteristics.

Regardless of what type of investor you are, there’s a chance you can take advantage of losses in the near future. Rather than narrowing your investment focus to an ETF with a focused index like technology or small caps, consider buying broader-based index funds like one tracking the S&P 500 and one tracking a total stock market index. Trading one for the other, by rule, is considered to be on the up-and-up in terms of the wash-sale rule.

One of the main tenants of tax loss harvesting is that you can offset gains and income today and keep more capital for investment. You may also be able to keep your taxes on income and capital gains lower in the future.

Roth Conversion

During a bear market, one possible way to make the most of it is to convert to a Roth IRA. A Roth conversion occurs when one converts a traditional IRA into a Roth IRA. With a traditional IRA, you’re paying taxes upfront, not in retirement. With a Roth IRA, you pay taxes on the money when you contribute it, but not when you withdraw it in retirement. Your pre-tax IRA may be an ideal time to convert to a Roth IRA if you have a lot of assets. In the event that you elect to include your assets when they have dropped in value on your taxes, you may lower your taxes accordingly. Six months ago, withdrawing the same assets would have cost you a lot more in taxes.

One of the most opportune times for many people to make a Roth conversion is early in retirement when your income is much lower. For those who have taken a temporary leave from their work, had a pay cut, or who are looking for a second career, the Reverse Mortgage is an opportunity to convert the principle of their estate at a low rate of taxation.

When all is said and done, transferring as many assets into your Roth account at the lowest possible tax rate provides you with various advantages. Firstly, the funds will continue to grow tax-free, and you can withdraw them tax-free in retirement. You will see increased appreciation in the account after the recent downturn, theoretically.

Furthermore, at any point after five years you may choose to take out your converted funds and will be subject to no taxes or penalties of any kind, regardless of your age. Unless you’re making an emergency withdrawal or retired early, don’t do that. Once you take money out, you cannot put it back in.

Another reason Roth IRAs are beneficial is because they are not subject to required minimum distributions. As a result, you can substantially lower your tax burden later in retirement when you have both required minimum distributions and Social Security income.

So, if you convert your traditional IRA into a Roth IRA during a bear market, you’ll pay taxes on the money at today’s lower tax rates. And, since the value of your investments will be lower during a bear market, you’ll pay less in taxes overall.

Final Words

Despite the current market conditions, there are opportunities for retirement savers to take advantage of this bear market. Investors who are patient and have a long-term time horizon can use this market downturn to their advantage by buying quality stocks at a discount. In addition, retirement savers should consider using this bear market as an opportunity to rebalance their portfolios and make sure their asset allocation is still in line with their goals and risk tolerance. Finally, now is also a good time to review your expenses and make sure you are not overpaying for any investment products or services. By taking advantage of this bear market, you can set yourself up for a more successful retirement.