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Hi Taylor
- I'm suddenly on the fence about retiring. I'm 52 and had been planning
to cash out this year, but the pandemic has me a little nervous about
making the change. Should I hold off or stick to the plan? - Olivia
Hi Olivia - This has become the big question for a lot of people.
In the last three months, the Dow has traveled about 15,000 points
in either direction, making investors feel anything but safe with
their retirement funds.
In theory, you need to have enough in savings to withstand these downturns.
That's not always the case, but it's what we should prepare for. Let's
talk about what you need to feel comfortable in your decision. |
1.
What can you use now? If you're retiring at 52, you must
have money beyond your traditional retirement account to keep
you afloat for the next seven years until you can withdraw without
penalty. A lot of early retirees plan to live off of 4% of whatever
they have in their brokerage accounts, since that theoretically
allows you to take earnings without touching the principal. If
you have, let's say, $5+ million available, you should be able
to withstand the downturn long enough for things to recover. On
the other hand, if you have less than a million, you might be
cutting it close at a time when people really can't afford to
cut it close. Trust the systems, but don't let too much ride on
hope.
2. Work if you can. With things as tumultuous as they are,
if you have a good, safe job that provides a useful service and
brings in significant income, you might want to stick it out for
another year. Especially with travel being on hold and so many
of the normal luxuries off the table for retired people, you could
get pretty bored without a job. Assuming you keep the position
and earnings for another year, that lets your savings go further
and also gets you a year closer to when you can start pulling
from retirement accounts as needed.
3. How flexible can you be? Anyone looking to retire needs
to address this, not just those doing so while facing economic
turmoil. Do you think you'll be able to adjust your lifestyle
enough to weather a 30-50% drop in your portfolio, or will that
have you running out of money too quickly? Do you have prospective
sources of income like consulting or a freelance trade that can
supplement your savings? Is part-time work something you might
lose on account of the pandemic? Trust that the economy will recover,
but also take stock of how adaptable you can be in the short term.
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It's hard to
adjust to the things outside of our control, especially when they
threaten our livelihood. Whether you continue with the retirement
plan or work another year depends on what you've got and how much
you need. Just be honest with yourself and you'll find the answer.
Stay safe!
© Taylor Kovar
May 20, 2020
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| Legal Disclaimer:
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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