Retiring during a volatile market

*This content is brought to you by Brenthurst Wealth

By Leslie Greyling*

If you are close to retirement age, or a new retiree, the current downturn in markets is likely raising many concerns. The first half of 2022 has been a volatile time for most investors, and especially detrimental for those who are planning to retire this year.

From conservative to aggressive portfolios have suffered losses over the past 6 months:

Source: Brenthurst Wealth investment committee

Investors are most vulnerable to market shocks in the early months or years of retirement. Someone who withdraws money early in retirement from a portfolio that is declining in value is at greater risk of depleting their nest egg too soon, relative to a retiree who suffers a market downturn in later years.

If you are planning for 20-30 years of retirement, those first few years are very important in terms of what you end up experiencing for your outcome. The risk is less likely for someone who retires at an older age because their money would not need to last that long.

There are a few steps retirees and those planning to retire soon, can take to protect their nest egg, and manage risk, while giving investments time to recover.

  • Reduce spending and thereby reduce withdrawals from retirement money. Reducing withdrawals puts less stress on the investment. Cut costs wherever possible, electricity and water consumption, fuel usage, expensive food such as take-out and restaurants, and postpone holidays.   
  • Restructure where your withdrawals come from. For example, if you have money in cash, rather increase withdrawal from this source, instead of increasing withdrawals from a portfolio invested in equities.
  • Check that your portfolio is well diversified of various asset classes for a better chance to survive a market downturn. When more of your money is in conservative assets, it will be less affected by market volatility.
  • Consider a combination of Guaranteed and Living/Flexible Annuity products if you are retiring now.
  • Delay your retirement if you can. Those that have already retired can think about earning a side income, to put less pressure on their nest egg.

It makes sense to wait to retire until the market is more stable, however, the market will always be unpredictable to some extent, and if you are waiting for a perfect moment to retire, you could wait a long time.

  • Make sure you have made adequate provision for retirement. With rising inflation people are finding it harder to save money because the cost of goods and services is more expensive. Change your spending habits and reduce “luxury” expenses to ensure you continue to save money for retirement.
  • Structure your retirement planning to provide you with different sources of income, for example, rental income, income from discretionary investments and compulsory retirement funds. This will result in some flexibility to potentially adjust your income level from various sources in times of market volatility.
  • If you have limited savings, and they have fallen in value, don’t sell now. It will benefit you, in the long run, to hang tight and wait for the market and investment values to recover.

While the current market downturn may tempt you to sell in a panic, try to hold off, even if you must cut back on your discretionary spending for a while. The global economy tends to move up more than it moves down and will recover over time.

Unfortunately, there is no magic solution to the current economic uncertainty and even the most astute analysts cannot predict with absolute certainty what lies ahead, given the surprises that hit the world this year. But it also does not have to define your retirement if you take corrective steps now. Reach out to a financial advisor, to help you find the best path to retiring well despite the uncertainty.

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