I’m within a couple of months of an early retirement at 63. I watched the market tanking last month.
I should turn off the news being so close to retirement. It’s a big mindset shift going from a paycheck and maximum contributing to retirement and cash savings to spending mode after four decades of saving and working in corporate America. I’m worried about retirement longevity, with my savings potentially having to last three-plus decades as I enter my next chapter. Both my parents lived to 98.
At retirement, I will have about 90% of my current average monthly expenses ($5,300) covered post-tax by two company pensions and an annuity that starts in January 2026. I don’t plan to draw Social Security until at least full retirement age (hopefully, I will still be around and the benefits will not be cut). I have about two years of current income in savings to bridge the gap for 2025 and early 2026.
Here are my retirement savings: brokerage holdings of $300,000 and retirement savings of $1.1 million ($960,000 is Roth) are being challenged by the negative market and recession fears. I’m not planning to touch those for another year. Given the uncertainty of the market and Social Security, is it reasonable to expect my retirement assets to last 35 years? I think we are officially in a “bear market.”
Single Nervous Saver
Related: ‘I’ll retire when I’m dead’: My 401(k) lost $50,000 in the market turmoil. I’m in my early 40s. What should I do now?
Two company pensions? You’re ahead of the game.
The S&P 500 SPX officially entered correction territory last week — a 10% fall from a recent peak. A bear market, on the other hand, is defined as a prolonged fall in markets and/or a 20% drop from a recent peak. We’ve had two bear markets in the 2020s already and Ryan Detrick, chief market strategist at Carson Group, said we’ve never had three bear markets within five years of each other.
That said, a lot of things are unprecedented and there’s a first for everything. We’ve had a pandemic, a new administration that is forging a different course from all previous Republican and Democratic administrations in modern times by redefining the postwar Western alliance, and it’s been more than 100 years since a U.S. president won non-consecutive terms (Donald Trump did it in 2016 and 2024, following in the footsteps of Grover Cleveland, the 22nd and 24th president).
A quick back-of-the-napkin calculation, with the caveat that I don’t know whether you will have mortgage or rent when you retire: If you were to take 4% a year from your $1.4 million retirement savings ($56,000 a year or $4,670 a month) that would last you 25 years. The good news: Most of that money would be post-tax, given that you have $960,000 in an IRA; plus, your brokerage account will hopefully continue to grow.
It’s not clear whether that is part of your company pensions. If not, you’re home free. If it is, you’re still in great shape. Still, consider cutting down on your expenses. With such expected longevity comes greater responsibility and planning. But even if your parents did not live to 98, you only have today and if you can afford to retire early, and want to spend your time doing other things (or nothing at all) that’s a luxury can afford.
You are, regardless of the latest market correction, hitting it out of the ballpark with your savings. The average 401(k) balance hovers at around $242,200 for baby boomers (born 1946–1964) and $182,100 for Generation X (born 1965–1980), according to Fidelity, and the average 401(k) retirement balance across all age groups is $127,100. You have the best of all problems: good health and expectations to live into your 90s.
Some 75% of non-retired adults had at least some retirement savings, but 25% had no retirement savings, the report added. “Among those with retirement savings, these savings were most frequently in defined contribution plans, such as a 401(k) or 403(b),” according to a report by the Federal Reserve. Some 75% of non-retired adults had at least some retirement savings, but 25% had no retirement savings, it added.
Jon Gruber, department chair and Ford Professor of Economics at the Massachusetts Institute of Technology, recently told NPR’s All Things Considered, “The stock market is not a place to be if you need money any time soon. The stock market is a place where, over long periods of time, it has traditionally outperformed other ways to save your money. But over short periods of time — that is, periods of one to five years — it can do quite badly relative to other ways to save your money.”
Related: ‘I’m deeply disturbed’: My portfolio lost 20%. With Trump’s trade war, do I sell my stocks and buy gold?
In your 60s, you should have reduced your exposure to markets, especially if you plan to retire. “The stock market is not a place for gambling. It’s not a place for short-term saving. It’s a place to put your long-term savings and take advantage of the long-run growth of the U.S. economy,” Gruber added. He said businesses don’t like uncertainty, and President Trump’s tariffs could lead them to stop hiring and eventually lead the economy into a recession.
By 63, you should have less than 40% of your savings in equities to protect against the kind of market correction we experienced last week. If you have not hedged your portfolio, and the markets continue to tumble in the months ahead, you may have to give up on your immediate plan for early retirement in order to maintain your existing lifestyle. You will eventually be able to add Social Security to your income, but the longer you wait, the more you will receive.
Most people take Social Security when they are eligible for their full benefits at age 66 — 28% of men and 26% of women. That’s according to data from the Social Security Administration. Only 8.4% of men and 9.3% of women started taking their benefits between the ages of 70 and 74. The SSA encourages people to delay taking Social Security by offering a bump in payments if they wait. The SSA reminds people who delay retirement to sign up for Medicare at 65.
Virtually all American workers age 45 to 62 should wait until beyond age 65 to collect Social Security, according to this working paper. Claiming early reduces household lifetime discretionary spending by $182,370 for the median worker who is near retirement. “Optimizing would produce a 10.4% increase in typical workers’ lifetime spending,” the researchers wrote. “For one in four, the lifetime spending gain exceeds 17%. For one in 10, the gain exceeds 26%.”
You get 100% of your Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and you receive a lesser amount if you claim at any time from the age of 62 until full retirement age. If you wait until age 70, you receive approximately 8% more per year. Some advisers say it can work out roughly the same whether you start taking your benefits at 62 or at 70 — it all depends on how long you live; hopefully, like your parents, into your 90s.
You have been prudent with your savings and prepared well for your retirement years, says Miklos Ringbauer, founder of MiklosCPA in Los Angeles. “While business/market cycles are normal you absolutely should monitor developments.” He recommends you consult with an adviser and CPA to maximize your tax advantages and avoid overdrawing or making irreversible investment decisions so you can achieve as much financial longevity as possible.
Food for thought as you address the market turmoil.
Related:‘Is it finally time to freak out?’ I’m in my 50s and worried about the $650K in my 401(k).
Previous columns by Quentin Fottrell:
‘He claims to be a nihilist’: I told my friend to sell his Tesla shares. He stopped speaking to me. Is that normal?
‘In their last days, our parents changed their will’: They left me $250,000, but gave my sister $1 million. What should I do?
‘They hate our generation’: My son and daughter-in-law want us to sell our house — and move to Oregon to start a commune
Source link
