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You Just Retired And The Market Heads Down

December 29, 2022

For over a decade the market kept rising. One of the most nerve-racking occurrences is when you retire and the market heads south. What to do?

The first is to accept the market is unpredictable and you can’t know in advance from one year to the next what the rate of return will be. We know over time, almost 75% in fact, the market rises.

Currently, we’re in the down time. Add to that inflation and the bonds that were supposed to operate as a cushion when stocks declined but haven’t because of the rising interest rates.

Many people like to quote the 4% rule. If you take out 4% of your portfolio you won’t run out of money over a 30-year retirement. That isn’t always true, especially when you start to withdraw just as the market declines.

The 4% rule came under question as well because when it was created, interest on bonds was much higher. While interest rates are improving, the 10-year treasury isn’t back to what it was in 2002 – 4.61% according to Macrotrends historical charts.

By the way, Jill knows who started this, Bill Bengen – 4% was never his rule but rather was his observation that 4% would have worked based upon previous investment history. However, we all know the saying that past performances do not guarantee future results.

Christine Benz, Morningstar’s director of research suggests retirees should reduce their withdrawal rate to 3%.

For clients who have a financial plan, we take your actual expenses, income and investments to review your withdrawals over retirement. We aren’t applying a percentage. However, we also suggest that when you retire and the market goes down, if possible, withdraw less.

Obviously, you need to pay for your fixed expenses but consider holding off on some of the discretionary ones. And in the reverse, if markets have a great year – splurge a little.

The difficulty is once you withdraw the money, it is no longer available to increase when the market moves up.

We are always happy to discuss your situation with you.


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