The theme this week on the Retirement Quick Tips Podcast is: Inflation Is Still Getting Worse! What To Do Now

Today, I’m talking about delaying retirement until we come out the other side of what looks to be a near-certain recession. 

The last thing you want to do is retire into the teeth of an economic downturn and a cratering stock and bond market. Why does this matter so much? A well-documented concept that most investors are completely unaware of or don’t understand is the sequence of returns risk. This is the risk that you will have significant losses in your investments during the early years of retirement. 

The sequence matters here, and it matters a lot, because losses early in retirement are much more damaging than the same magnitude of losses experienced later in retirement - say 10 to 15 years into retirement. 

If your nest egg takes a 25-30% hit at the very beginning of retirement when you still need it to last 25 years or more, you don’t have the time to make up for those losses, if you retire during that time and at the same time you’re taking income from your portfolio that you now need for retirement. The nest egg shrinks even more because of your withdrawals, and you just significantly increased the odds of running out of money in retirement. 

So what should you do if you were planning to retire in 2022 or 2023. Unless you have well in excess of what you need to live on in retirement, the most prudent thing to do is to wait until the recovery is well-underway before you retire. Your portfolio doesn’t need to get back to it’s previous high-water mark, but it needs to be a lot closer to where it was than it likely is today, and if the markets and the economy continue to deteriorate, you’ll want to wait and see how bad it gets before you make any potentially irreversible decisions about retirement and starting to drawdown your assets, start social security, etc. 

If you already retired like so many Americans did during the last couple years, then you’ll want to re-evaluate your financial plan to make sure that the current downturn hasn’t jeopardized your retirement plans. And you’ll want to stress test your plan, so you’ll know how much more your portfolio can drop before changes are required. 

Consider ways to cut back or eliminate your withdrawals. That might mean going back to work part time, doing some consulting work, and like I mentioned earlier this week, cutting out all unnecessary expenses. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance