The day has finally arrived. You take a moment to reflect on the path leading up to the next stage in life. Medical school, residency, starting a practice, saving toward retirement, putting the children through college, paying for a wedding or two. You have been hardworking, diligent, and disciplined in your planning and preparation.
You are ready to transition into a deserved and anticipated retirement, which includes traveling, working on the golf game, helping the grandchildren with college, and spending time with loved ones.
The date is October 2000, and the beginning of the tech bubble. During the dot.com bubble, the NASDAQ Composite lost 78% of its value.
The date is now late 2007, and the housing market crash saw the S&P 500 decline 57.8% between October 2007 and March 2009.
You have spent 40-plus years in a profession that has helped countless patients and has provided you with the financial means to live a comfortable retirement. Now, due to forces out of your control, your retirement dreams and aspirations are in question.
The timing of your retirement has the potential to dictate one’s retirement success as measured by the ability to sustain a desired quality of life without running out of money.
Do I have enough money?
A recurring question over the years has been: “Do I have enough assets to retire or will I run out of money some day?”
That is a simple question, but one that is complicated by the unknown – will you retire in the beginning of a bull market or a bear market? At what point in the financial cycle will you be forced to start drawing on your portfolio?
The sequence of returns, as it is referred to, can produce starkly different answers to these questions.
The good news is there are strategies that can mitigate those detrimental consequences of retiring at the wrong time. Here are six ways to protect yourself and your portfolio:
Step 1: Realistic budget
The most important step is to know how much money you will need in retirement. We recommend that before retiring, take the time to determine a realistic budget, and do not underestimate your expenses.
These expenses should be broken down into recurring essential expenses (e.g., food, utilities, mortgage, property taxes, etc.) and discretionary expenses (vacations, dining out, gifts, etc.). If the market declines for a year or two, you can use a predetermined formula to adjust discretionary expenses based on a percentage withdrawal of the portfolio balances.