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Markets and economy

3 tips for retiring during a volatile market

Learn the best ways retiring investors can respond to challenging, volatile markets.
4 minute read
  •  
December 14, 2022
Markets and economy
Market volatility
Page
Article
Retirement
Budgeting
Prioritizing goals
Michael Kohler, CFP®

Senior Financial Advisor

Michael Kohler, CFP®

Michael Kohler, CFP®

Michael Kohler is a senior financial advisor in Vanguard Personal Advisor, where he serves as a financial planner for managed clients. His advice ranges from portfolio management and spending strategies to legacy and continuity planning. 

Michael joined Vanguard in 2008 and served in a variety of customer service positions before moving to Vanguard's advice department in 2013. He earned a B.S. in business administration with a dual major in marketing & business management from the University of Delaware. He holds FINRA Series 7 and 63 licenses and is a Certified Financial Planner™ professional and a Certified Trust and Fiduciary Advisor. 

Retirement is the most common goal among investors. In fact, it's likely you'll spend many years saving and adding to your nest egg—all so you can have the retirement of your dreams. For some, that destination is just around the corner. But what if a rocky market is just around the corner too?

Market downturns have occurred over the years, but until recently, time was on your side. Now that you're getting close to retirement, this downturn feels more real—and scarier—than the ones before. And with inflation hitting store shelves, you can also feel it hitting your wallet.

If you're concerned market forces might interfere with your retirement plans, here are 3 things that can help you stay on track.

1. Focus on what you can control

Throughout your investing journey, it's important to recognize that there are variables you have no control over. The ups and downs of the markets are out of your hands, so it's best to spend your time and energy on the aspects of investing you can control, such as:

  • How much you save. While it may be tempting, don't lower your contributions in the homestretch.
  • How much you spend. Aim to lower your monthly or annual expenses if you can.
  • Your asset allocation. Assess whether your mix of stocks, bonds, and cash reserves reflects your current risk tolerance, and adjust if needed.
  • Fees and expenses. Keep your investment costs low, and find strategies to minimize taxes on your retirement savings.

Focusing on these areas will support your investing goals and give you peace of mind as your retirement date nears.

2. Assess your retirement plans

To retire comfortably no matter what the markets are doing, you need a solid plan. These key steps can help you ensure you're ready for anything:

  • Prepare an accurate budget for your spending during retirement.
  • Set aside enough cash to cover 1 to 2 years of spending without touching your portfolio.
  • Analyze when is the best time for you to file for Social Security benefits, depending on your needs and goals. Learn more about Social Security
  • Use our Retirement nest egg calculator to research how your portfolio balance could change based on different market scenarios. This helpful tool analyzes your portfolio's performance through 100,000 potential conditions, so you can see how likely you are to meet your goals.
  • Determine whether your budget is flexible enough to adapt to different market conditions. For example, could you trim expenses by 3%–5% for a few years to reduce withdrawals from your portfolio?

Remember: Retirement isn't the end of your investment journey—it's just the beginning of a new chapter. It's important to maintain a long-term investment strategy beyond the milestone. Everyone's situation is unique, but taking these proven steps will help you shape the retirement that's right for you.

3. Adjust the plan if needed

For most investors, staying the course and riding out a market storm is the best course of action. However, if your situation changes, you might need to readjust—and that's OK. If you're facing a challenging time, these options might relieve some of the pressure.

Reassess your risk tolerance

Generally, you should avoid making drastic changes during a downturn or recessionary period. However, small 5%–10% tweaks in your target asset mix are appropriate if your situation changes and you'd be more comfortable adjusting your risk level.

Consider downsizing

If you have an unexpected drop in income, you might not be able to save toward your retirement goal for a while. Lowering your expenses can help make your situation more comfortable and lessen the demands on your savings.

Delay your retirement

As a last resort, you could choose to delay your retirement by 6 months to a year. 2 financial benefits accrue each year you delay:

  • One extra year of saving in your retirement accounts.
  • One less year of withdrawing assets from your nest egg.

Keep in mind that a well-designed, balanced, and diversified portfolio is built to handle stormy weather as well as calm seas. Think of your portfolio as the boat: If it's strong and seaworthy, it can ride out the ups and downs of market waves. It's safer to stay in the boat when the water's choppy, but it can be dangerous to jump out of the boat in the midst of a storm. Staying the course will help you achieve the life you've planned for yourself when you reach retirement. 

The journey to retirement can have unanticipated detours and delays, and it’s important to exercise patience and caution along the way. With proper planning and commitment, you can weather any storm and remain on course to your destination: a rewarding and fulfilling retirement.

—Michael Kohler, CFP®

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Certified Financial Planner Board of Standards Inc. owns the certification mark CFP® in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.