When the market falls just as you step into the doorway of retirement, your response can mean the difference between a comfortable retirement and a less than satisfying one.
“The quickest way to recover is to stop withdrawing,” says Anthony Martin, CEO of Choice Mutual in Reno, Nevada. “This could mean returning to work or putting off retirement, if possible. Accessing other funds, such as home equity, can also help.”
When the market drops during the first year or two of retirement, the risk isn’t in the short term. You’ll have enough money to fund those early years of retirement, even if you sell securities at lower than expected prices. The challenge will come in the later years. You’re now working off of a smaller base to grow from. You do have options, though. And they may surprise you.
“It can be dangerous to try to recover from negative market returns in retirement as it can lead to investors taking on more risk to recoup their portfolio losses,” says Michael Fischer, Director and Wealth Advisor at Round Table Wealth Management in Westfield, New Jersey. “Portfolio construction is critical heading into retirement, and the portfolio must be stress-tested to understand the impact of negatively sequenced returns early in retirement.
Typically, it takes about two years for stocks to recover from a bear market. In the most pessimistic case, you’re looking at five years. In either of these scenarios, however, recovery is something to look forward to. That means it’s critical that you stay cool through the worst of times.
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