For most women I talk with, retirement security is not about watching the stock market every day or earning the highest possible return. It is about knowing you can pay your bills, enjoy your life and sleep at night—even when the market has a bad year.
The market has rewarded investors generously in recent years. Watching your account balances grow feels wonderful, but a growing account is not the same as having a dependable retirement income plan.
That leads to an important question: If the market dropped significantly tomorrow, would you know where your income would come from?
I am not predicting another 2008. No one knows when the next downturn will begin, how far the market will fall or how long it will take to recover. But market declines are a normal part of investing, and the best time to prepare is before one happens.
What 2008 taught us
During the Great Recession, the S&P 500 lost roughly 37 percent in 2008 alone. Many people who were approaching retirement—or had just retired—watched years of savings disappear on paper at the same time they needed those savings to support their lives.
If retirement is many years away, you may have time to wait for the market to recover. You may also be able to continue investing from every paycheck, buying more shares while prices are lower.
Retirement is different. Your mortgage or rent, groceries, insurance, taxes and other expenses continue even when the market is down. If your only source of additional income is selling investments that have fallen in value, you may be forced to sell at exactly the wrong time. Those dollars are no longer invested when the market eventually recovers.
Why the timing of a market loss matters
Financial professionals call this sequence-of-returns risk. The phrase sounds complicated, but the idea is simple: A large market loss can do much more damage if it happens just as you retire and begin taking money out than if it happens years earlier while you are still working and saving.
Here is a simple example. If $500,000 falls by 30 percent, it becomes $350,000. If you then need to withdraw $25,000 for living expenses, only $325,000 remains to benefit from a future recovery. This is how a temporary market decline can have a lasting effect on retirement savings.
This does not mean you should move all your money out of the market. Most women will need some growth to help their savings last through a long retirement. It does mean that you need a plan for where your income will come from when the market is down.
A retirement income plan can help create choices. It may coordinate Social Security, pensions, cash reserves, investments, annuities or other sources of dependable income. The right combination is different for every woman.
Could your plan support you through a downturn
- If your investments were down 20 or 30 percent, where would next month’s income come from?
- How much of your essential spending is already covered by Social Security, a pension or another dependable source?
- Do you have enough safe, accessible money to avoid selling investments during a difficult market?
- After years of market growth, are you taking more investment risk than you realize?
- If you share finances with a spouse or partner, would both of you know what to do?
You do not need to predict the next market downturn. You simply need a plan that helps you continue living your life, avoid poor financial decisions and sleep at night knowing your income has been thoughtfully planned.
Would a second opinion give you greater confidence
If you are within five years of retirement or have already retired and are not completely confident about where your income would come from during a prolonged market downturn, I invite you to schedule a complimentary 30-minute Retirement Income Discovery Session.
We will talk about your concerns, review how your current retirement income is structured and identify your next right step. This is not about trying to time the market. It is about helping you feel prepared before the market gives you a reason to wish you had.
Schedule Your Retirement Income Discovery Session Here
A market downturn may be beyond your control. Where your retirement income comes from does not have to be.
With love and gratitude,
Katana Abbott, CFP®
Guide for Your Next Chapter™
This information is intended for educational purposes only and does not constitute individualized investment, insurance, tax, or legal advice. Financial strategies should be evaluated based on your individual needs, goals, and circumstances.
