With a constant stream of opinions about the country’s economic state, you may wonder if you’re still in a position to comfortably retire in a down market.
You might feel fear creeping in as you check on your accounts or worry about your once-steady nest egg. Rest assured that many others share this concern and that, as financial advisors, we’ve helped hundreds of families navigate similar terrain.
We believe that comfortably retiring during a down market is still a possibility. Markets are constantly fluctuating, so with a robust plan, professional guidance, and a little vision, you can start to navigate choppy waters and be on your way to smooth-sailing golden years.
Here we’ll explore some crucial considerations and steps to look at when assessing how to retire during a down market.
Use Your Goals As A Guide Post
Before you make drastic (and potentially costly) changes to your investment and retirement plans, take some time to reflect on your goals.
Your financial goals are the first step to holding steady on the course to a comfortable retirement. Consider what you’re working and saving for and if the current market landscape has caused your goals, values, or priorities to shift.
Likely your values will remain steady, but your goals and priorities may fluctuate depending on your season of life and other external factors, like a wobbly market. And, if history repeats itself (which it tends to), you’ll likely experience “wobbly markets” several times in retirement, so having a strong and healthy reaction is key.
For example, you might have a goal to retire comfortably, but does that goal come with a rigid timeline? Do you have to retire by a certain point in your life? For many people, it’s less about the timeline and more about retiring to a lifestyle they’re excited to live.
Consider what is most important about your retirement plan and let those answers help you make informed, intentional, values-driven choices.
With Your Goals As A Lens, Review Your Investment Plan
Once you’ve reacquainted yourself with what’s important to you about retirement, it’s a good time to revisit your investment plans and meet with your financial advisor to review what you’ve already established. Here are some questions you might go over with your advisor:
- What does your long-term investment trajectory look like? How big of a “hit” will your nest egg actually take? Will you need to rebalance your portfolio to realign your investments with your needs?
- What short-term measures do you have in place to support immediate cash flow needs? Think emergency money, bonds, annuities, pension, Social Security, and other fixed income.
- Will you need to make up the difference? Perhaps that means drawing less from your portfolio, amending some “extra” spending in your budget, working a little longer, etc.
Reviewing these factors will help you to assess any risk you have right now in your retirement plan. In fact, many financial advisors stress that one of the things you can control when it comes to a volatile market is the level of risk you have in your portfolio.
It’s important to know what you do have control over because talk of a down market—or the reality of one—can bring up fearful emotions. Sticking with a deliberate and tailored strategy (we call this the Smart Money Approach) can still put you in the best position to weather a market storm because emotional or fear-based decisions are often the most detrimental ones regarding finances.
Why does that tend to be the case?
These types of decisions are often brash and made with the intent to fix a short-term perceived “problem” or a bad feeling without looking at the big picture. Psychology circles call this tendency “catastrophizing.” It’s a state where our brains try to protect us from danger, so it only considers the absolute worst-case scenario.
For example, when the market goes down, your brain may fear a catastrophic crash that wipes out years of retirement savings. But when our brains are catastrophizing, it fails to fully recognize all outcomes or the ramifications of succumbing to this worst-case projection.
An example is pulling money out of the market due to seeing downward trends but neglecting that this action could affect long-term growth and compounding in your accounts.
Your investment plan has helped get you this far, so what makes you think it wouldn’t be able to support you now? Though you may tweak your plan here and there, it will likely follow a logical pattern based on your risk tolerance, capacity, time horizon, and more.
So, focus on the big picture, and look at all perceived threats through the lens of your long-term goals. Have confidence that, as they always do, trends that go down must come up.
Take Practical, Goal-Driven Action
Now, look at how your day-to-day financial situation fits in with your goals and larger investment plan. Ask yourself questions like:
- If you’re working in retirement, is your job secure?
- Are you interested in changing course and consulting or doing other part-time work?
- What lifestyle trade-offs may you have to make if you still want to retire “on time”?
- Did your plan include a big financial goal, like a home remodeling project? If so, we could push that project out a couple of years and let the market volatility calm down. So you don’t have to “give up” your goals; you may simply want to readjust and optimize.
Marrying your dreamy financial goals with realism about where your finances are currently will help you reconnect to your values and bring perspective about how to readjust to achieve your long-term goals.
When to Consider Delaying Retirement During a Down Market
So, is there ever a time when you should actually veer off course, so to speak? Yes, there are some situations where you might consider delaying your retirement, including:
- When your investments have significantly declined to the point where your lifestyle is in jeopardy, and
- If waiting even a short time (6 months to a year) would improve your chances of your nest egg lasting all retirement and beyond.
Now, if you decide to delay, don’t panic!
We know it’s easy to feel despair when your finances aren’t shaping out exactly how you imagined, but it doesn’t mean that your dream retirement isn’t possible. Be patient and know that there’s an upturn around the corner. Remember, down markets and recessions are inevitable, but those times are when you can let the plan be your guide.
Even if a worst-case scenario happens, such as a recession, you can hopefully find comfort and peace knowing that things will soon change. Statistically, an average recession lasts 11 months, so with a solid plan, financial advisor, and personal follow-through on your part, a rough patch will be a blip on your radar in the grand scheme of things.
Plus, if you decide to delay your retirement, that doesn’t mean you have to delay living the life you want. See what lifestyle adjustments you can slowly start incorporating into your life now.
For example, if you own a business, could you take on less work and transfer more to a partner? Consider the lifestyle shifts you can make today to move closer to your ideal retirement lifestyle, even if it’s a little further down the road.
What Lifestyle Adjustments Can Help Keep Your Retirement Dreams in Tact?
As for actionable things you can do now to move towards a comfortable retirement in a down market, there’s plenty to keep in mind. Start with this list:
- Downsizing, or “right-sizing”: Do you really want to keep maintaining that big house you raised your kids in? Sure, it’s lovely, but it might not be practical. Reframing your life to realize you are simply “right-sizing” to fit your needs now can be extremely empowering. Do this so that you get to a place where what you own or spend makes more sense with where you’re at in the present rather than what served you in the past.
- Avoid big, spontaneous spending: Are you feeling left out because your friends are buying boats and sports cars? Resist the urge to do so “even if you could” or to keep up with the Joneses. You can still find ways to enjoy the “finer things” in life without derailing your financial plan. Keep in mind that you may be surprised when the “finer things” are far simpler than you imagined—quality time with loved ones, pursuing a hobby you love, connecting with friends, giving back to the community, etc. Spending money on the people, places, and things that bring you true joy will always feel better than a hefty purchase that doesn’t align with your values.
- Work with a financial planner to invest in “buckets”: This means you’ll continue to earn returns even as you draw down your initial savings. A general rule is to divide money into short, medium, and long-term “buckets.” This way of grouping things can be a helpful way to frame saving, investing, and spending in retirement.
Smooth Sailing Ahead
No matter where you’re at in your financial timeline, a comfortable retirement in a down market can be attainable.
By using your goals to guide you, making informed decisions about the future, and taking deliberate action in the here and now, you set yourself up to achieve the lifestyle you’ve always dreamed of in retirement.
Want to see where you’re at with your retirement goals and if you need to make any changes given this down market? Schedule a call with one of our advisors today!