Here's a bit of a brain teaser: Two people have watched their investment portfolios slide 25% this year. One person just recently retired at age 60. The other, age 80, has enjoyed retirement for a while.
Using a simple example, suppose you're still working and have $100,000 in a stock fund held within an Individual Retirement Account and leave it alone for five years. Suppose you earn 10% in four of those years, but lose 25% one year. The stock market fell the most since June 2020 following Wall Street's humbling realization that inflation is not slowing as much as hoped. Assuming you don't touch the account, it wouldn't matter which year you suffered that 25% drop.
There's a significant difference, Witt said, between investment planning while you're accumulating or saving up money compared to when you're pulling money out, during the distribution phase. Big initial losses, coupled with ongoing withdrawals, can put a large dent in an account's value, requiring much more time to recover and raising the danger of running out of money early, he added.
"A major market downturn at the beginning of one’s retirement journey is among the most potentially destructive scenarios for investors," wrote Rene Martel and Avi Sharon of investment giant Pimco inPoor timing decisions"tend to crystallize the original loss and dig a deeper hole, making recovery harder or even impossible," they added.
And, of course, it's wise to make conservative yet realistic spending estimates during the early years of retirement and live within those boundaries.
What we can to to change this is vote Republican in Nov.
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