2 SECRETS TO CONFIDENTLY RETIRE IN A MARKET CRASH
Ari Baum, CFP®
IN 2022, $3 TRILLION IN RETIREMENT SAVINGS DISAPPEARED ON PAPER. YOUR MIND SPIRALS WITH
“WHAT IFS” WHEN YOU WAKE UP FROM A DEEP SLEEP AT 2 A.M. THE NEWS KEEPS REPORTING BIG AND SUDDEN MARKET DROPS. YOU CAN’T HELP BUT START WORRYING ABOUT HOW THIS WILL AFFECT YOUR RETIREMENT PLANS.
Bear markets are frightening, and you no longer have time to wait them out. You’re not sure if you need to keep working a few more years—even though you might have had your heart set on a specific date. Has your world just fallen out from under you?
Although times are scary, know that bear markets too shall pass. You’re not the first to consider retirement in a declining market with potential losses. History shows there are successful ways to retire, even when the market outlook is bad. You can tap into this knowledge to help you make decisions.
Retirement Secret #1
Buckets aren’t just for retirement dreams. When stocks rise in the midst of a “bull market,” it’s easy to take on more risk since you’re experiencing the reward side of the risk/return coin. But when the market drops 20% or more and you’re facing the risk side, that’s often very uncomfortable.
Ideally in retirement you’d like to be able to wake up every day without worrying about your money! If you have too much of your money in stocks, you’ll be anxious and unsettled about your future every time you hear about a market drop. Instead, balance your stocks and bonds with cash to balance your risk (and sleep well during retirement).
Throughout retirement, you’ve got three periods of time with their own “bucket” of money.
Bucket #1. Within the next year
In the first period—the next year—you need cash for expenses. Figure out what your costs will be in the next twelve months, and make sure that you have enough cash for them.
That way, if the market suddenly takes a steep hit, you don’t have to worry. You already have money that won’t lose its value no matter what’s happening in the stock market. But cash loses ground to inflation, which is why you only want one bucket of cash.
Bucket #2. The next 5-7 years
The next period of time is within the next five to seven years, and this bucket is best with bonds (which provide fixed income). You’ll have some income thanks to the interest payment or coupon on the bond.
This bucket also doesn’t fluctuate with the stock market. When you start running low on cash, you can sell some of your bonds.
Bucket #3. The long run
Cash and bonds don’t keep up with inflation over the long term. So, you need stocks (equities) in the third bucket, which will allow your money to compound over the years. As the cash and bond buckets run low, you replenish them by selling stocks—but only when the stock market is performing well.
Retirement Secret #2
The 6 P’s
As the saying goes, proper prior planning prevents poor performance!
With a financial plan that’s stress-tested through multiple return scenarios (known as Monte Carlo analysis), the numbers will demonstrate if you need to make changes. Whether you need to work longer, take a part-time job in retirement, reduce your bucket list—or none of the above.
Stock market declines are scary and often investors fear the worst. But that doesn’t mean that your fear is necessarily well-founded. On the other hand, you may find that working an additional year or two could make a huge difference to your retirement. Discovering this ahead of time gives you the ability to choose.
You might decide that you’re willing to defer your retirement dream for a bit longer. Or you may want to give up a few lifestyle items or downsize in order to retire when you want. When you can see the likely effects of different decisions on your retirement years, you hold the power in your hands. A financial professional has the software to run these complex scenario analyses, but you’re the only one who can supply the details of your financial goals and dreams.
No More Nightmares: Be Ready to Retire On Your Timeline, Not the Market’s
You’ve worked hard to secure your retirement. But when markets drop, it’s tempting to stay close to shore and avoid rough waters. You may have a retirement date in mind (you might even be counting down the days!), but when it looks like the market is heading for a downturn, you start to question when you can actually retire. If you’re unable to change your retirement date, you may begin to wonder if you’ll need to take on a job in order to survive. You worry that you’ll never be able to retire your alarm clock. Or whether you can enjoy everything that you’ve planned all these years.
When you see your portfolio dropping by thousands of dollars in a month or even a week, you may be tempted to think of your retirement dreams as frivolous. Fortunately, a stock market downturn doesn’t have to spell disaster for your retirement dreams—as long as you’re planning ahead. You can balance the cash and bonds in your investments so that you don’t have to sell any of your stocks when they’re at a loss. In fact, there are ways to capitalize on a market drop. That’s when stocks are on sale and, if you’ve planned for it, you might be able to scoop up some bargains.
It’s critical that you start planning right now. Markets are cyclical and putting a plan in place right away allows you to be prepared when the next bear market hits.
The content is developed from sources believed to be providing accurate information. Consult your financial professional before making any investment decision. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance does not guarantee future results.
Ari Baum, CFP® is the founder and CEO of Endurance Wealth Partners, with over 25 years of experience in the Financial Services industry. He brings his in-depth experience to Conceive. Believe. Achieve. for his clients.
Securities and Advisory services offered through Prospera Financial Services Inc. Member FINRA/SIPC. Brokerage and Advisory accounts carried by Wells Fargo Clearing Services, LLC
