A weak stock market can create uncertainty when retiring, but a good financial plan can help you find a comfortable path.
People considering retirement in the near future, as well as early retirees, will likely need to navigate some choppy waters during these times. A slumping stock market, a slowing economy and a Federal Reserve that has signaled further increases in interest rates to combat inflation require retirees to make smart decisions to avoid jeopardizing a successful retirement.
That’s where a well-thought-out financial plan can help make a comfortable retirement possible – even during a tough economy. When speaking with recent retirees or people who are considering retiring soon, here are three actions I generally recommend to help them navigate this major life transition.
1. Examine Your Spending History.
Many people don’t keep a household budget in the earning years of their career. They also do not want to live on a strict budget in retirement, so I use a different approach: We add up all annual spending over the last three years to look at macrotrends in spending patterns. Anyone can do this by collecting all credit card and bank statements to find spending averages.
The purpose of this exercise is to see if this spending trend is sustainable for the next 30 years in retirement. A person or couple must be able to afford to live on their portfolio savings and guaranteed sources of income, such as Social Security benefits.
In addition, most new retirees soon realize they need to fill their days with at least one major activity – and this usually costs money. During the first two years of retirement, I’ve watched my clients spend large sums on home improvements, as well as things like international and domestic travel in a recreational vehicle. Certain hobbies, such as restoring a classic car, can easily run into the tens of thousands of dollars and stress the financial plan.
If spending needs to be reduced, there can be some easy fixes. These can include cutting back on monthly automated subscription payments, increasing home and auto deductibles in exchange for lowering premiums on insurance policies, traveling during the off-seasons and taking on some home improvement projects instead of hiring professionals.
Some can be bigger changes – people may decide to downsize their home or consider selling extra cars to save even more money.
2. Build a Plan to Survive a Down Stock Market.
Worry during uncertain times is normal. But those with a comprehensive financial plan should be able to ride it out without making costly errors.
Selling investments at a loss is often based in fear. Most financial advisers know someone who sold their stocks when the market dropped in March 2020. But markets quickly reversed course and set record highs for nearly the next two years. A person with millions in investments who sold their stocks and lost 20% of their value often locked in their losses, missing out on reaping the potential benefits of market gains down the road in the recovery.
