During our recent Halloween holiday, I pondered that it can be very anxiety-provoking to enter retirement.
Up until then, you have had a steady income. You probably were able to live your lifestyle while you paid off your mortgage and even saved some money. If the stock market had a drop in prices, you might have liked the idea that you were investing during a “sale.” Or at least it did not bother you much, as your lifestyle did not depend on what the stock market was doing.
At retirement, other than Social Security, the regular income is gone (other than for the rare individuals who have guaranteed pensions). Now you are mostly dependent on a pool of savings. This money must supply enough annual income to support your desired lifestyle and do so for your entire remaining (maybe joint with spouse) lifetime. And you have so much more time to “watch” your portfolio and worry about it.
We see this worry frequently with early retirees. After some normal drops in stock market prices, there is the frequent thought “What if it doesn’t come back?” Or “Maybe this time is different?” Some might rush to sell their holdings, only to lock in losses. And then there is the issue of when it is right to re-enter the markets. We have yet to see anyone get this right.
Here are some suggestions on minimizing retirement financial anxiety.
First and most important, you need to see if your expectations for spending are rational. Is the amount of money you have saved (and invested prudently) enough to support the amounts you will take out annually over your expected lifetimes?
Unfortunately, it is not uncommon that we talk to a family that we believe is stopping work too early, and who also has unrealistic lifestyle expenses based on what they “should” spend. It is a disaster to find out that you have too little money 10 years or so into retirement.
Second, you either need the discipline to stay invested during market volatility (for most families, this means at least 50% of their savings in global stocks), or you need someone to help you. Trying to time the market’s swings will almost certainly accelerate your losses.
Finally, many advisors favor a “retirement bucket” approach-which is a pool of safe fixed income that can provide several years of desired distributions regardless of what the stock market is doing. This may be a drag on performance (especially now with ultra-low interest rates) but adds a great deal of safety and peace of mind.
The biggest mistake one can make before retirement is not thinking about these issues. You must have a financial plan and be able to stick to it. The plan needs some buffer for “what if” issues as well.
