How Market Ups and Downs Affect Your Pension Benefits
News headlines have not been an investor’s friend in recent weeks. – “2024: Major Indexes Record Their Biggest One-Day Losses in Nearly Two Years”, “Dow sinks more than 1,000 points in global market sell-off” - cue the dark clouds and rainy weather… It is very easy to feel shocked and emotional when reading these kinds of headlines, and then become confused about how this directly impacts you. Let's focus on one portion of your financial wellness to determine how big of a flood you need to prepare for.
Market volatility, or the natural ups and downs of the stock market, is a normal part of the financial landscape. These fluctuations can be driven by a variety of factors, such as changes in the economy, shifts in interest rates, or global events that influence investor confidence. While it’s interesting to follow these market trends, it’s important to understand how they might—and might not—affect your pension benefits.
Since you participate in a Defined Benefit (DB) pension plan, the good news is that your retirement income is generally well-protected. In a DB plan, your benefit is calculated based on your final average salary, pension trust service credits, and your retirement factor. Once that amount is determined, it doesn’t change based on what’s happening in the market. Whether the stock market is having a stellar year or experiencing a bit of turbulence, your pension amount remains stable and predictable. This is one of the key strengths of a DB plan: it offers peace of mind and financial security, regardless of market conditions.
The market can be volatile for several reasons. Economic growth might slow down temporarily, or there might be changes in interest rates or inflation. Sometimes, global events can create uncertainty, causing markets to fluctuate. While these factors can cause the value of investments to rise and fall in the short term, SLOCPT is designed to be long-term investors. We don’t react to every little blip in the market. Instead, we follow a long-term investment strategy aimed at growing steadily over time.
Even when the market is a bit choppy, SLOCPT is managed with care. The pension funds are diversified, meaning they invest in a mix of assets like stocks, bonds, and other investments. This diversification helps cushion the impact of market ups and downs, ensuring that the fund remains healthy and your benefits are secure.
It’s also worth noting that the investment staff, consultant, and managers of SLOCPT are experts at navigating market conditions. We keep a close eye on the economic landscape and adjust strategies as needed to keep the fund strong. Because of this careful management, your benefits are designed to be resilient, even in times of market uncertainty.
In short, while the market may have its ups and downs, your SLOCPT retirement benefit is built to provide you with a steady and reliable income in retirement. Feel free to put away those umbrellas and rain boots and enjoy the SLO sunshine – cheers!
Katie Girardi, Executive Director of SLOCPT