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Retiring During a Volatile Market: 5 Items to Consider

Retiring During a Volatile Market_
Rick Henderson, CPA, CFP®, AIF®
April 14, 2020

The past couple of months have been a tumultuous ride for investors. In mid-February, the Dow Jones Industrial Average (DJIA) reached its peak.  Soon after, the markets were engulfed by extreme volatility, generating record single day losses and ending the long-running bull market in early March; yet, recently, there has been a partial recovery in the markets. While ups and downs in the markets are normal, research has shown that the actual sequence of those market returns (the order in which they are going up or down) within the first five years of starting withdrawals from your retirement assets can have a significant impact on your long-term retirement income.

If you are planning on retiring soon, or have just recently retired, what should you consider doing to ensure that your retirement planning stays on track, while your portfolio delivers the long-term sustained retirement income that you want? Here are 5 key items for you to consider:

  • Look at your current or planned income sources from things like Social Security, pensions, non-qualified deferred compensation payout, rental income, etc. Then, look at your liquid cash reserves. If the combination of your income sources and cash is enough to meet your living expenses and give your longer-term investments time to recover in value, then it is likely that you will be able to continue with your retirement plans as they are now.
  • If you have not retired yet, and don’t have a mandatory retirement date, you could delay retirement. According to Dow Jones Market Data, bear markets last approximately 7 months. This would allow you continue adding to your retirement accounts at prices lower than earlier this year, postpone withdrawing from those same accounts, and letting them recover in value.
  • If you have not yet retired and still want to retire soon, begin your retirement with a more conservative spending/withdrawal amount than the amount you originally planned or budgeted. This should put you in the position of having more flexibility later in retirement as the bear market fades away.
  • If you are recently retired, you can make spending adjustments to temporarily reduce withdrawals from your portfolio, leaving more of your portfolio in place while waiting for the markets to improve. In a study regarding new retirees1, T. Rowe Price found that 1) 89% of the participants in the study were able to adjust their lifestyle to their incomes; 2) 60% prefer to adjust their spending up or down depending on the markets and the value of their portfolio; and 3) 78% reduce spending immediately if their spending exceeds their income.
  • Consult with your Atlanta Financial advisor to review your retirement or financial plan and portfolio. Your plans and portfolios are custom designed and built to weather ups and downs in these types of markets and provide you income through your retirement.  But, if you have recently retired or plan to retire in the next year, it is a good idea to revisit your plans with your Atlanta Financial advisor in order to understand what impact, if any, the recent market volatility has had on your plans.

For retirees and soon to be retirees, it can be very unsettling to see the financial markets tumble as they have in the last couple of months. By working with your Atlanta Financial advisor to build and review your retirement plan and portfolio, you can weather the recent market turbulence and have the comfortable and fulfilling retirement you desire.

 

 

1   T. Rowe Price, “First Look: Assessing the New Retiree Experience” (2014)

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