Kozak Financial Group
October 21, 2022
Retiring into uncertain markets
Financial market turbulence has many Canadians wondering if this is the right time to retire. While today it might feel as though the sky is falling, if we cast our minds back to the last market correction you can remember your opinion is probably substantially different today than it was back then. Perhaps the biggest event that stands out in your mind is 2008’s financial crisis. Where were you at the time? Focused on your career, saving to put your kids through school, seeing the light at the end of the tunnel on your mortgage? When retirement seemed like a far-off concept you would have thought “Markets go up and down, I am not worried”.
Compare that thought process to how you feel now. You are a number of years older and wiser, and you yourself are thinking about retiring. Your bucket list travel plans, kitchen remodel, and time spent in the woodshop or sewing room, all seem more foolish today amidst ongoing market turmoil. Maybe you’re thinking now is not the time to retire, and you should hold off for things to cool down.
If I am describing your situation or something close to it, I would advise you to take a step back to try and gain perspective on your situation. Back in 2008, you weren’t worried about your retirement portfolio because you knew that you had plenty of time to recover. Yours and your partner’s salaries were paying the bills, not your retirement portfolio. Let’s face it, back then your retirement savings were a fraction of what they are today, so you inherently had a shorter distance to fall. In hindsight we can see that you had a different perspective than you do today. The markets haven’t changed, your goals haven’t changed, your risk appetite hasn’t changed; the only thing that is different is your perspective.
“That’s all fine and well,” you might think, “but back in the day it was so easy. All I had to do was deposit more money to my savings, invest it, and sit back and let the markets do their thing. How do I reverse this process and have my retirement savings fund my lifestyle? What if I run out of money, what if there is an emergency and it sets me back, what if, what if, what if...” To set your mind at ease, notice that none of those questions specifically mention market volatility. These are instead the very same questions any retiring person asks, no matter the state of stock and bond markets. The simple solution to both your market volatility and retirement preparation concerns is to shift your focus. Instead of thinking about your retirement savings in terms of their bottom-line value, you should focus on the income stream your investments can produce.
The dividends and interest payments your investments produce are minimally changed by volatility in the markets. Additionally, the income your retirement savings produce serves as a guidepost. The amount of income your portfolio produces answers the question: how much can I withdraw without touching any principal? With that answer in mind, you can plan for the future and feel more secure in doing so. By focusing on the income, you avoid making rash decisions based on market volatility. Instead, you can plan your expenses based on a sustainable withdrawal from your investment portfolio.
If you are considering retirement but the volatile markets are giving you cold feet, try reevaluating your perspective on the situation and focus on metrics other than the total value of your accounts. If your concerns still aren’t quelled, reach out to a financial advisor to discuss your concerns. You might also find it helpful to set up a comprehensive financial plan. Many investors view a financial plan as a road map for a young person just starting out, but financial plans are much more versatile. A financial plan can be an equally powerful tool for any person making a big transition from one stage of their life to the next.