There's no denying the fact that we're living in uncertain times. During these
unprecedented times of a global pandemic, the market is more volatile than usual, and
many people are nervous about what the future holds. This can be especially true for
those who are hoping to retire soon, especially if they would be relying on investments
to supplement social security income.
If you're worried about how stock market movements could impact your impending
retirement, check out these frequently asked questions:
Q: Can I still retire on time?
A: Maybe. It depends on a number of factors and how the numbers look in your specific
situation. Here's what you want to consider to determine if you can retire when you
Cash on hand. How much cash do you have in a bank account right now? You
may be able to use cash savings to cover expenses instead of pulling money out of your investment accounts. That would allow you to retire when you planned,
but also give your portfolio time to recover from a market dip.
Annual expenses. Once you determine how much cash you have available to
fund your lifestyle, you need to determine how much that lifestyle costs you on
an annual basis. If you have two or three years' worth of expenses saved in
cash, you may be able to retire on time and use this cash before you begin
withdrawing more heavily from your portfolio.
Income sources. If you have income sources beyond your portfolio, like a
pension, then that can help your nest egg go farther without postponing your
Q: What if I no longer have enough to retire because of a
stock market downturn?
A: If a market downturn caused your portfolio to drop below your targeted level for
retirement, it's worth evaluating if you can continue working a few more years (even if
it's just part-time). This gives you a chance to earn more money both from your job and
from your portfolio as the market eventually recovers.
You can also consider downsizing your home, refinancing your mortgage, or cutting
back on travel and other non-essentials to help save money and reduce expenses.
Depending on how important it is for you to retire now, you may even want to consider
moving to an area with a lower cost of living.
Q: Should I do anything with my portfolio?
A: Typically, you don't want to make any dramatic moves with your portfolio after a
market downturn already happened. It's too late to avoid the drop, so now it's time to
focus on making the most of the potential for recovery.
That means staying calm and not moving everything you have to cash. That turns
unrealized losses into realized ones, and eliminates the possibility of increasing the
value of your investments in the future. What you can do, however, is consider
rebalancing your portfolio. Rebalancing can bring your portfolio back in line with your
ideal asset allocation so that you're not taking on too much risk or missing out on the
advantages of proper diversification.
Q: What can I do to increase my financial stability?
A: Even if you can still retire right now, you might be seeking a little extra security in the
face of an uncertain economy and potentially volatile market that continues into the
second or even third years of your life after work.
If that's the case, consider extending your career slightly. Even one or two additional
years of earned income can make a big difference to the viability of your plan. That's
because you reduce the amount of time you need to pull from your nest egg while
simultaneously giving yourself more time to save up money (held as cash) to use during
the first year or two of retirement.
You can also potentially increase your income stream in retirement by delaying when
you file for Social Security. Once you reach full retirement age as defined by the Social
Security Administration, you can add 8% to your monthly Social Security check1
rest of your life for every year you delay filing for benefits (until you hit age 70).
If you continue to work while also getting tight with your budget, you'll greatly increase
your financial stability. (And remember, you don't have to live lean forever. Focus on
cutting costs at least for the first few years of your retirement. Then you re-evaluate
your spending as the market improves over time.)
Q: How do I know if my plan still works?
A: Contacting your financial advisor is a smart step to take to ensure that you're still on
track to retire despite recent market movements.
Your advisor can review your specific financial situation and help you decide if you can
still retire as planned. Your advisor can also help you develop a strategic plan for
withdrawing from your investment portfolio in a way that doesn't jeopardize your
chances of maintaining your nest egg throughout your life.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Social Security Administration, "Social Security Benefits: Early or Late Retirement?"
Accessed April 29, 2020.
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