There’s no question that the recent downturns in the stock market and the economy in general adversely impacted the retirement accounts of millions of Baby Boomers who are preparing to retire in the near future. Many are planning on working more years than previously expected in order to preserve their retirement savings.

Historical Stock Market

While the general advice for investments in the stock market is that previous performance is not necessarily an indicator of future performance, every historical downturn in the U.S. stock market and recessionary trend eventually turns around in a period of several years. Historically the stock market has returned to its prior peak and then has exceeded its previous high.

Continue Investing in a Down Market

It’s understandable to lose interest in investing in equities during a downturn in the economy. However, continuing the discipline of regular investments into retirement funds during a discouraging period is critical to the recovery of a portfolio after losses. Stocks purchased at low prices average with stocks purchased at peak prices and provide more total shares to benefit from during the upswing that follows as the economy returns to equilibrium.

If You Must Withdraw

For those who must withdraw funds during a market downturn, the obvious answer is to withdraw as little as possible to preserve capital available for compounding during a market upswing. The ideal maximum rate of withdrawal is 4% of retirement savings. At a 4% rate of withdrawal economists predict that retirement savings will last for 36 years during an extended down market. At a 6% rate, equivalent funds will last for 18 years under the same circumstances.

Anyone who is reaching retirement age has already lived through several market cycles. It’s important to consult with your financial advisor to keep individualized financial plans for retirement in step with changing economic conditions.

Larry Parman
Attorney at Law