What if this turns out to be a terrible time to retire?
This was the title of an article by Morningstar, one of the leading sources for independent investing research and information, and it really caught my attention.
Given the amount of market ups and downs we have experienced it raises a really good question about retirement and market conditions.
Q: What makes a terrible time to retire?
A: Mainly down markets.
This is because you guarantee a loss. Plus, that is less money available for growth when the market recovers. It is no secret in the financial advising space that everyone says never sell when the market is down.
But, what if you have to - since you need to sell what you have in order to have money/income for your expenses.
This is a real issue that most retirees face when they have an entirely market-based approach to retirement or any type of financial savings approach.
What do you do when the market is down and you need money?
Bonds! That is how most think because that gets your market-based approach less risky. But what if Bonds are down? in 2022 both stocks and bonds were down. Not a common thing but it happened. Click here for a good article about that.
Sequence of Returns Risk is something worth exploring. It is simply that the order of your investment returns matters quite a lot and we do not quite know what anyone’s specific sequence will be. One or two years difference could have a large impact on your funds lasting or not.
There is no real way of knowing if the time you are choosing to retire will be or won’t be a good time. You may enter in perfect market conditions only to have things go south. Then it potentially is a compounded problem if you must take money from your accounts for living expenses if the market is down.
You can check out the article that initially caught my attention.
https://apple.news/A6JMEemfIQyCkiAOflO2-5A
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan