The stock market has been in freefall recently thanks to rising interest rates and inflation. So what does that mean for Boomers who are retired and done saving?
Risk Analysis
When you’re young, advice for surviving bear markets is fairly straightforward-keep saving and investing and don’t let yourself get scared out of the markets.
Retirees, however, are at a much different point in their lives and may not have the time for the patience required to wait out down markets. There’s no job income anymore, and retirees shift from an accumulation mindset to de-cumulation since it will be time to make withdrawals from portfolios.
Financial planning is much more complex for someone who is spending down their portfolio rather than building it up.
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Monte Carlo Simulations
Monte Carlo simulations can be a great asset because they show a wide range of potential outcomes. However, you only have one shot to get it right in retirement. When you’re in the last decades of your life, there isn’t time for trial and error.
There is a plethora of advice on saving and preparing for retirement, but not so much for how to live out your years successfully when you’ve left the workforce for good. If you’re lucky you’ll have 2-4 decades to invest during retirement, depending on when you choose to leave the workforce.
Bear Market History
There have been four bear markets in the last 30 years and five bears in the 30 years prior to that. Those will need to be factored into your financial plan even after retirement. You’ll need to be invested in the bull markets in order to cancel out the bear markets.
A Vanguard 3-fund portfolio, with 60% invested in stocks and 40% invested in bonds would have been up 8.4% per year in the ten years through the end of 2021. You’d get great return considering the interest rates were so low at that time.
Even though that portfolio is down 20% this year, the financial assets built up experienced a significant bull market leading up to this year.
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What About Homeowners
If you own a home, chances are you have a significant amount of equity built up. Even factoring in the housing crash of 2008, nationwide home prices are up 200% since the turn of the century.
Lots of Opportunity
Retirees now have the opportunity to add yield to their portfolio that has not been available in over a decade. Short term bonds today are yielding what junk bonds were yielding a year ago. Expected returns are much higher for bonds than they have been in a long time. Retirees will still need to balance the need for growth over the long-term with stability over the short-term when it comes to building a durable portfolio. Since growth has been the key driver of returns over the last decade, stability will finally pick up some of the slack.
Bear markets can be painful, but they can also present unique opportunities, so keep your eye out.
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This article was produced and syndicated by Wealth of Geeks.
