From Retirement Now Newsletter 2-17-2022
If you’re watching the markets much, or your portfolio statements, you’ve noticed the markets are a bit dicey so far this year, and trending a little downward.
It’s definitely given investors a reminder that markets go down as well as up. Especially since the last 3 years have been very positive.
Over my last decade of helping people reach their retirement goals and be better prepared I’ve heard first hand accounts of how scary bear markets can be even before retirement… sometimes even 10+ years before a person retires. One of the biggest defining market moments for many was in 2008. I’ve heard many accounts of how people telling me what they did during that time.
A lot of the stories involve getting out of the market and missing the recovery that started in 2009. With almost everyone telling me they wish they had stayed put with their investments because they would have recovered quicker.
And for a lot of those people they were 10+ years away from retirement during that bear market.
If you’re like many by the time you get to the 10-15 years away from retirement mark, your nest egg, usually in something like a 401k, has grown to a significant size. Not just from your contributions over the last 20-30 years, but also because of the growth you’ve had on those contributions.
And a bear market that causes your 401k to go down 20-30% can be a large actual dollar figure. And the closer you are to retirement the scarier that can be since it represents going backwards on reaching your savings goals for retirement.
Not only that, but most people will imagine what the actual dollar loss would be if there were to be another 20% loss on top of the current one.
All very legitimate thoughts.
As scary as that is it dials up to 11 when retired because an entirely new element is introduced… Well 2 new elements actually:
First, Actively taking withdrawals from that portfolio and
Second, The realization that you can’t add anymore to it since you’re now retired.
Those two elements add another dimension to bear markets for a retiree.
And there’s no long-term effective solution to avoid bear markets while still being invested, even though some investment managers may promise otherwise with their claims of being great market timers and what not.
And the other extreme “solution” is to not invest any in the market at all, which usually involve using safe vehicles (like CD’s, etc.) that there’s little to no chance of even keeping pace with inflation.
I heard one person describe that as “safely going broke.”
So the reality is it can be tough planning for retirement and even being retired, especially during bear markets.
Which makes it all the more important to have a plan in place that takes a longer term (and historical) view of things. That shows what levels / goals of savings you need to reach to be financially ready. As well as looks at what a reasonable long-term rate of return would be for you to hit those goals, using historical figures that look well beyond just the last 5 years. And definitely having a strategy on how to take withdrawals from a portfolio given the fact that bear markets come and go and will come again.