I want to retire today. Now what?
You’ve planned for this day for years. Retirement. It’s finally here—and so is a volatile market. Should you delay? Go to cash? Will these be the right decisions when you look back three years from now?
This week’s blog was inspired by an article in the Wall St. Journal titled “Older Investors Face Hard Call Amid Swings”.[1]
It’s different once you are ready to retire
I’ve seen it many times. During one’s working years, pre-retirees are more willing to ride the ups and downs of the stock market in order to accumulate a larger retirement nest egg. However, once retirement is within a year or two, suddenly investors go through a shift. They are interested in putting a big portion of their holdings into cash, money market funds, certificates of deposit or other short term, safe investments. Their hope is that they have accumulated enough money that they can just live off the interest.
Living off the interest
While this strategy may have worked for prior generations, it does not work for investors today. Interest rates are near rock bottom with the ultra-safe 10-year US Treasury Bond yielding a paltry 0.76%.[2] You read that right. Buy a US Treasury, hold it for 10-years and you earn less than one percent interest. On a $1,000,000 investment, that’s only $7,600 per year. Hard for most people to live on that—and this does not consider the fact that inflation reduces the value of the $7,600 every year.
Of course, the fear at the retirement juncture is that stock losses are permanent and will not recover for 10 years.
I would like to remind our readers that many “almost retirees” were saying the same thing in 2009 during one of the worst financial calamities of a lifetime. The lesson here is that it is unwise to predict or assume that stocks will not recover for 10 years. For those who remained in cash and believed losses were permanent in 2009, they missed out on one of the longest bull markets in US history. In fact, stocks recovered mightily in the first few years following 2009.
The fallacy of ‘going to cash’
Also, the move to “go to cash” means that you now must make two correct decisions: 1) when to go to cash and 2) when to get back into stocks. It has been well documented that even professional investors are unable to consistently make these decisions accurately.
Once retired, you are going to spend a long period of time in retirement. I have a close family friend who will turn 90 years old this summer. In another year or two she will have spent more time retired than working! While we can all aspire for such longevity, it is a real possibility for most of us. In fact, one of the biggest misconceptions about retirement is underestimating how long you will live.
What do I do?
Retirement is a big life transition and it’s likely going to last a long time. Most people do not have enough saved to make it last without investing a portion for long term growth. And, stocks have historically been one of the best investments to outpace inflation.
If you want a well thought out plan that is going to work for your entire retirement and not just now, give us a call. We’re here to help.
Lyman H. Jackson
617-653-3303
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.