By Craig Erwin, Ph.D.
The stock market has been hammered this year. Inflation has sent the prices of necessities like gas, rent, and food soaring. The Federal Reserve plans to keep jacking up interest rates for years, which is helping to put homes out of reach for many home buyers. At the same time, there is a war in Ukraine with no end in sight, which is causing supply chain snarls and shortages. Many of us long for the good old days when were terrified of Covid-19, but the economy and the stock market didn’t scare us.
One group hit hard by the economic storm this year is people who had planned to retire. Like every year, many people planned to retire this year. While some have stuck to their plans, many have postponed retirement plans, hoping the economy and the stock market will improve in a year or two. They are afraid of retiring while runaway inflation is pushing up the cost of living and their investment portfolios have taken a beating, due to a tumbling stock market.
People who had planned to retire this year face a tough decision. They don’t know how soon conditions will be better. They also don’t know whether things will get worse before they get better. It could be six months or six years. When your savings have shrunk 20% (on paper), it can cause you to fear that things may get much worse before they get better. Fortunately, when we fear that things will keep getting worse and worse, we are often wrong – things often start getting better before long. Of course, there are no guarantees. As those who lived through the great depression can tell you, economies and markets can tumble for years, and recoveries can seem to take forever.
Some of the people who wanted to retire this year put it off. That’s probably wise. But, even when the economy is humming along and the stock market is marching upward, it can be wise to delay retirement. Why? Because retirement is expensive. Every year you delay retirement is another year that income keeps flowing from your pay checks and you can delay digging into your retirement savings. Delaying retirement by just a couple of years can help your savings last years longer. On the other hand, if you are forced to retire a couple of years early, it can take a toll on your retirement savings. Retiring early increases the chance that your savings will run out before you die.
When you make retirement plans, figure out what you’ll do if you are forced to retire early or if you feel compelled to delay retirement a couple of years until the economy and stock market are in better shape. Retiring later than you had planned will be easier if you’ve planned for it. The worst that can happen is that you run out of money after you retire. Knowing you are well prepared for retirement financially, and unlikely to run out of money in retirement will give you great peace of mind.
Are you confident that your retirement savings will last your entire life? Is there a chance you might be forced to retire early?
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