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Despite economic uncertainty seemingly around every corner, the stock market seems unfazed, continuing to set new record highs. It’s a welcome sight for investors, particularly those playing the long game. But for those nearing retirement, it can create a sense of unease, wondering if or when the shoe may drop.
It’s a reasonable concern since deciding when to retire is one of the most important financial decisions you’ll ever make. But in many cases, retirement readiness has far less to do with what the stock market is doing today and more to do with the planning you’ve done leading up to retirement.
In fact, if you’ve planned well, market highs can present an opportunity to retire sooner than you expected.
Retirement should not be driven by fear or by trying to predict the market’s next move. It should be based on preparation, spending needs and risk management.
One of the biggest threats to any retirement plan is when retirees have to withdraw from their accounts while the market is down, which locks in their losses and can have a negative compounding effect on their nest egg. This is known as sequence-of-returns risk.
That is why many retirement income strategies focus on ensuring that the first few years of retirement are funded through more stable income sources or lower-risk assets.
You can never remove all risk, but the goal is to make sure any sudden market drops don’t force major changes to your retirement plan.
Strong markets can be especially helpful for those who are close to retirement. If your portfolio has seen significant growth, those gains may improve your odds of retiring when you want. In some cases, it may even allow you to retire early. But being able to call it quits early depends on more than just account balances.
As you get closer to retirement, the goal is no longer simply maximizing returns. It’s about ensuring that the wealth you’ve accumulated can support your lifestyle throughout your retirement.
For example, if you’re someone who is within a few years of retirement, today’s elevated market conditions may provide an opportunity to lock in gains, reduce risk and position your assets more strategically to focus on income generation.
Without proper planning, wild swings in the stock market can create problems. For example, if you’re heavily exposed to stocks and planning to retire soon, a sudden market drop could delay your retirement by years. That’s a long time to keep on working simply because you took on too much risk nearing retirement. Your retirement plan needs to be resilient enough to handle market ups and downs without jeopardizing your long-term future.
Your retirement income plan should be stress-tested against different market conditions and life scenarios. You need a clear strategy for generating income. Retirement isn’t simply about having a large account balance. It’s about turning your assets into a dependable income stream that can last for decades.
Keeping your expenses down is also a key factor. Someone who spends conservatively may be able to retire earlier than someone with a more expensive lifestyle, even if their savings are similar.
The difference comes down to how much income will be needed each year and how much flexibility exists within the budget. If you’ve done a good job controlling your expenses, you may have more options than you realize.
Many investors are waiting for the bottom to fall out, assuming that a stock market correction must be around the corner. That mindset can lead people to postpone retirement when they don’t have to. This could end up causing you to spend years trying to make back the money you had and then lost.
Instead of making an emotionally-charged decision, I encourage clients to ask themselves a series of questions to help them determine their retirement readiness:
If their answer is yes to any of those questions, then market conditions may be less of a warning sign and more of an opportunity.
No one knows when the next market correction will happen. Instead of trying to predict what markets will do next, focus on what you can control: your savings, spending habits, income strategy, tax planning and overall risk exposure.
Conversations around your finances and estate should never occur separately. At Blue Ridge Wealth Planners, we take the complexity out of financial planning, helping clients create a plan for everything, from investments, income, taxes, healthcare and your legacy.
Disclosures: The information contained herein and any opinions expressed are provided for informational purposes only and should not be construed as a solicitation to buy or sell any security, or as personalized investment, tax, or legal advice. Originally published at https://www.kiplinger.com/retirement/retirement-planning/why-now-may-be-a-better-time-to-retire-than-you-think.
As a former football player at the University of Tennessee under Coach Phillip Fulmer and a high school state champion wrestler, John Vandergriff brings a team-first mindset and disciplined approach to serving clients at Blue Ridge Wealth. After spending five years in ministry and coaching, he joined the firm in 2012 and has since become a trusted advisor and leader, helping individuals and families pursue their financial goals with clarity and confidence.
John is a dually licensed Insurance Agent and Investment Advisor Representative. He holds a Bachelor of Arts in Psychology from the University of Tennessee, combining his understanding of people with a thoughtful, relationship-driven approach to financial planning.
Outside the office, John remains active in his church through teaching and enjoys golfing, exercising, watching sports, and spending time with his wife, Ashley, and their two children.
