What to Know When Retiring into Uncertain Times

There has been a lot of chaos in the market over the last few years, and you may find yourself worried that you’re retiring at the wrong time. You may be worried that you will retire right before the markets and economy turn sour. These are both legitimate concerns, but there are strategies that you can employ to protect yourself against retiring during a bad market.

Why can it be bad to retire while the stock market is doing poorly?

Your retirement account is often a bundle of stocks and other investments that are tied to the performance of the stock market. So, if you retire during a year when the stock market is doing poorly, your savings in those accounts may be showing some losses. Because you don’t have time to continue contributing to those accounts and because you don’t have time to wait for those accounts to potentially recover, you might find your portfolio has locked in losses. What’s worse is if you do take distributions from your accounts during a bad market, you can limit the amount still in your account and your ability to potentially recover. The less money you have in your account, the less you’ll reclaim from a market recovery. The technical term for this is “sequence of returns risk.”^[1]

We get it. This might seem like something that the average person can’t control. You can’t make the Dow Jones go up. You can’t make the S&P 500 turn around. But you can do something to prepare for bad markets when you retire. Here are some strategies to consider:

1. Have a good idea of what you need to withdraw in order to be comfortable. If you retire during a bad market, it might be a good idea to limit the amount you are withdrawing from your accounts. If you know the approximate number for how much you need to be comfortable, this might help to minimize the amount you’re withdrawing and give your accounts time to possibly recover.^[1]
2. Develop access to investments and cash flows that are not tied to the market. If part of your retirement portfolio is in cash, you may find that this will give you some protection against a bad market downturn. Having a reserve of cash supplemented by Social Security, annuity or life insurance, and/or pension benefits might allow you to take some pressure off of your accounts that are tied to the market.^[1]
3. Plan, plan, plan. Both of the above suggestions are just part of a larger retirement picture, and market downturns aren’t the only thing that you may be worried about when it comes to retirement.^[1] Luckily, there are strategies and people out there that can help you to design a plan that takes these worries into account.

If you are worried about how the market will affect your retirement, or if you don’t feel confident in your current retirement plan, consider reaching out to one of our professionals today for a complimentary review of your situation. We are here to listen to your anxieties and offer ideas for possible solutions to whatever financial concern it is that keeps you up at night.