Sunday, July 20, 2008

When Your Retirement Date Lands in a Bear Market

James Tzitzouris, an investment analyst with T. Rowe Price has a timely, if rather frightening, article on how to handle the first five years of retirement should one begin in a bear market, like, say, the one we're currently in.

So much for the idea that I can pick a percentage, add to it year by year for inflation, and never again have to check the stock market while I retire in financial bliss, assured that my money will outlive me. Apparently I will never get away from having to pay attention to the financial markets and acting accordingly.

To his credit, Tzitzouris has a number of ideas as to how to approach retirement during a downward spiral, and it is clear that it is most devastating when it occurs at the beginning of one's retirement. Fortunately, this is precisely the time when one is better able to postpone the retirement date, continue to work part-time, or take other steps such as not increasing the percentage taken out each year, to lessen the impact of the bear market.

Since my own retirement is still ten years away, I don't yet have to face retiring in a bear market, but that's the thing about a cyclic market--when I do choose to retire, who knows where in the cycle it will be.

My thanks to Emily Brandon and her excellent blog Planning to Retire for pointing out Tzitzouris' timely article.

2 comments:

Bob McD said...

Grace

I think the key phrase here is "choose to retire." It sounds like you have some say in the matter. It is a real advantage to have the luxury of choice of a retirement date. That way you can pick an optimal time financially, which usually means a relatively prosperous time in the markets.

Bob McD

Retired Syd said...

While it can be nerve wracking, it doesn't really matter whether you retire in a down year or an up year if build a cash reserve to get you through the early years (if they are, indeed, down.) I just retired 4 months ago, and saw the writing on the wall when I made my decision to retire over a year ago.

I made sure I had at least 3 years living expenses in cash so that I would not have to sell stock as it is going down (which is the real reason you don't want to retire when the market is going down--if you are going to be forced to sell stock/mutual funds in that environment.)

Hopefully 3 years from now, things won't look quite so bleak (keeping my fingers crossed!)