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February 07, 2020 in New York City. As the stock market plunges with fears of coronavirus, it's new retirees that are most at risk. A dip as you step away from regular pay is the worst case scenario, whether you’ve retired at a more traditional age or taken the leap in your 30s or 40s, such as those that follow the financial independence, retire early movement. It’s hitting the negative arc in what’s referred to as sequence risk.
But for Koski, she’s feeling safe because she prepared in case of such a scenario. Whether the coronavirus lingers, leading to even deeper cuts in the market, or it serves as a short-term volatile blip, here’s how those that retired in the past couple of years, with potentially 40-year retirement time horizons , have approached the concern.While the numbers on television or your phone’s screen seem dramatic, having drops such as these isn’t a rare occurrence.
“I expect the market to drop at least 10% at some point most years because it usually does,” says Leif Dahleen, a former anesthesiologistOne tactic that retirees take, in order to prepare for such a scenario, is to have a number of years of expenses sitting in a high yield savings account or short term bonds, providing easily accessible cash if needed. Koski, for instance, set aside three years worth of living expenses, in case such a situation like we’re experiencing played out.
It allows you to avoid tapping the stock portfolio, as the market falls, which would lock in the losses that sequence risk brings.
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