Market volatility is unsettling for any investor but for those within 10 years of retirement it can feel alarming. A significant downturn at the wrong time can delay retirement by years, reduce your income, or force difficult decisions under pressure.
One of the most underappreciated risks in retirement planning is sequence of returns risk. This is the danger of experiencing poor market returns early in retirement right when you begin drawing down your portfolio. If your portfolio drops 25% in the first two years of retirement while you are withdrawing income, you are selling assets at depressed prices. Even if the market fully recovers, your portfolio may never fully bounce back.
A major market correction can affect your retirement timeline in three key ways. Your portfolio value drops below the threshold needed to sustain your income goals. Confidence drops and many pre-retirees delay retirement even when their plan is still intact. Income projections shift and your withdrawal rate may no longer be sustainable.
The bucket strategy is one of the most effective tools against sequence of returns risk. Bucket one holds one to two years of living expenses in cash. Bucket two holds three to ten years in conservative investments. Bucket three holds long-term growth assets with time to recover. When markets drop you draw from bucket one and leave bucket three alone.
Every year you delay Social Security past full retirement age your benefit increases by approximately 8%. Having a larger guaranteed income source reduces the pressure on your portfolio to perform during volatile markets.
Florida residents have a built-in advantage with no state income tax. Your Social Security income, investment withdrawals, and pension income are not taxed at the state level, which meaningfully extends how long your portfolio lasts.
At Tempus Wealth Management, Kevin Dziubela helps pre-retirees and retirees across South Florida build retirement plans that can weather market storms and keep you on track no matter what the market does.
This content is for educational purposes only and does not constitute financial, tax, or legal advice. Please consult a qualified professional before making financial decisions.