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  • Writer's pictureMark Fonville, CFP®

The Pros and Cons of Waiting To Retire In A Down Market

Updated: Nov 26, 2023

The Pros and Cons of Waiting to Retire in a Down Market

You spent decades building the "perfect" retirement plan, and you're all set to put that plan in motion.

But as soon as you're ready to hand in your retirement letter of resignation, the market drops significantly. What happens next?

Many people found themselves in situations like this over the last year, and didn't know what to do. Should they still retire? What do they risk? Will their savings still last the way they anticipate?

Today, we'll review the pros and cons of retiring "on time" even if it's a down market.

First, Reconnect With Your Retirement Goals

You may be tempted to act purely out of reaction to seeing your account value drop, but don’t rush into anything.

Before you make any decisions concerning your portfolio or retirement, return to your plan and remember why it was created.

  • What goals did you set?

  • What are you most excited about?

Ask yourself if your feelings or priorities have changed. In other words, if it wasn’t for the market would you even be second-guessing it? If you’ve kept your plan up to date each year then the answer is likely not.

That narrows it down to the timeline. For many people, the most important thing about retiring is doing it the way they want to and not necessarily about the timeline it takes to get there.

If the markets have you worried or are putting pressure on your goals, perhaps all you need to do is wait a little longer. This may be all you need to give yourself a greater chance of living the life you spent years planning and saving for.

What's A Down Market Anyway?

Financial articles talk about down markets all the time but what does that even mean? Generally, there are three "stages" of a down market, and it’s important to understand what each of them means.

  • Market downturns are sustained market declines that usually last for at least a year before turning around. You’ll also hear these referred to as “bear” markets.

  • Market corrections occur when the market has fallen at least 10% from its most recent peak. The length of time it lasts isn’t so much of a factor and although they can last a while they are often very short-lived as well.

  • Market crashes aren’t defined by either a specific percentage drop or duration, but instead when the market drops quickly by a significant percentage.

Understanding the market characteristics may give you and your advisor a better sense of how your portfolio and goals will be impacted and what your best options are for withstanding it.

The Pros of Retiring, Even When The Market Is Down

While it's certainly something you shouldn’t ignore, a down market doesn’t always mean you need to change your planning horizon. For some, it may make sense to stick with their original retirement timeline.

Some factors that may contribute to your choice to stay the course include:

  • Secure avenues of fixed income that will cover your needs, and are enough to make you comfortable. These are things like your Social Security payments, pension income, an annuity, bond interest, or a sizable cash reserve. Since these don’t rely on market performance to fund your withdrawals then they offer protection from market volatility.

  • If you're comfortable adjusting your withdrawal rate. Even with a significant portion of your investments exposed to the market, you can protect yourself by reducing your withdrawals when your balance falls too much.

  • If you have additional tax savings opportunities. Taxes matter a lot in retirement and your tax bracket can be impacted drastically with retirement account withdrawals. The more tax-efficient you are, the less you have to withdraw. By proactively taking advantage of tax-saving opportunities you can reduce the strain on your investments.

Important Cons To Consider Before Retiring In A Down Market

There are also reasons that you may want to avoid retiring when the market is down. Primary risks are:

  • The effect on portfolio longevity. The more you withdraw from your portfolio the faster it will be depleted. This effect is amplified if you start retirement in a bear market. If you plan to live well into your 90s, you need to be careful about how much you withdraw. Waiting is your best defense, but you may also want to reconsider your investment plan in light of starting distributions.

  • Lack of income stability. Cutting off your income right as the market drops further amplifies the downside. Instead, your paycheck can cover your living costs and you can buffer some of your losses by continuing to contribute to your retirement accounts. Remember, the best market days tend to follow some of the worst. When you contribute during the down market you’ll buy cheaper shares and then create momentum for the rebound.

  • Compromising on your lifestyle. Don’t forget the whole reason you are planning for retirement and remember what you want. If you retire in a down market, you may need to make necessary lifestyle trade-offs until the market recovers. Since we can’t know how long that will take it might be better to hang on a little longer rather than risk ruining your best decades.

Which Is Right For You? Let's Run Some Projections

With all of these options and considerations, how do you know which move to make, if any? You need a method for evaluating your options, and our preferred method is Monte Carlo analysis.

A Monte Carlo analysis allows us to estimate as a simple-to-understand percentage the likelihood that any given scenario will be successful based on a wide range of potential investment outcomes.

We can run these projections for you and help you make the most informed decision based on what the results show.

Get Started

Retirement doesn’t have to be a big guess.

Download our master list of retirement goals to help you start thinking about your plan and contact us for a free consultation when you’re ready to start.


Author: Mark Fonville, CFP®

Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money.

Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.


Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Registration of an investment advisor does not imply a certain level of skill or training.


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