This month’s AARP bulletin has an article titled “Make your Retirement savings last”.
This article points out that retirement investing is for the longer term and one should not sweat short term market movements. It also points out that there is one short term danger, however, that we should all be aware of.
Let us assume when you retire, the stock market is doing very well. You take a lump sum pension payment or consolidate accounts into an IRA and fully invest your nest egg. If the market has a serious downturn lasting several years just after this transfer, it hurts the investment portfolio significantly more than if the downturn occurs 5 yrs or more down the road. Any market downturn early in retirement years is the most damaging event to be concerned about.
You may hesitate to invest if the market is making new highs every week. The legendary economist John Maynard Keynes said “the markets can remain irrational longer than you can remain solvent”. So the tendency is to get fully invested and get in on the action. I know several colleagues, who invested fully as soon as they retired only to see a serious downturn occur a few months later. If they had waited or invested over a period of time, they would have done better. Diversification alone may not have been enough.
Since market downturns cannot be predicted, how will you invest if you are retiring in the near future?
If you are a retiree, what has been your experience managing significant downturns?
Sundar Mohan Rao
During the downturn in 2008-9, and in 2020, nearly all my dividend stocks continued to pay. Yes, some banks stopped paying in 2008-9, but I acted quickly and sold off all bank and financial stocks. I used the money to buy good dividend stocks at rock-bottom prices. So my income from investments was higher than ever.
I was still working in 2008-9, but I retired in 2014.
Excellent article this week by Darius on his experience navigating market downturns
https://humbledollar.com/2024/07/protecting-my-sanity/
I’m 61 and single with no children. My 403b retirement account is 80% invested in a total stock market fund, 10% in international equities, and 10% in a TIPS fund.
That seems risky for someone planning to retire in 2-4 years, but I’m planning based on other assets.
I have 18 months living expenses in T-Bills and T-Notes, with staggered maturity dates. At 65, I’ll have a pension that will cover bare minimum living expenses, but with no COLA. I plan to claim Social Security between 67 & 70, which will double my income. Those assets let me take more risk with retirement account.
That makes sense as you will have that guaranteed income stream.