What impact does the stock market crash have on your retirement plan? Do you need to adjust your retirement plan, delay your retirement, cut back on spending, or take some other retirement planning action?
This short article explains how a stock market crash affects your retirement planning decisions, depending on which stage of retirement planning you are in, already retired, about to retire, or retiring more than a year from now, using Free Early Retirement Planning and Software.
Already Retired
If you are already retired and using Free Early Retirement Planning, then the stock market crash, does not change your retirement plan at all.
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Your Free Early Retirement 30 Year Retirement Spending Plan uses the SafeMax or Safe Withdrawal Percentage, which calculates what percentage of your net worth you can spend each year, without having to worry about running out of savings during your retirement.
Developed by William P. Bengen, CFP® and published in the Journal of Financial Planning, the Safe Withdrawal Percentage, uses the worst 30 year economic period including the great depression, to calculate an annual withdrawal percentage with a 95% chance of success.
I have personally tested the Safe Withdrawal Percentage, in an effort to beat it, to find a higher safe withdrawal percentage and I could not.
What this means, is that your 30 Year Free Early Retirement Spending Plan, assumes a worst case scenario, that the next 30 years will be horrible,.and still gives you a 95% chance that you will not run out of savings during retirement.
Your Free Early Retirement Plan enables you to ignore stock market crashes, recessions, and even depressions. There is no need to panic, to sell this ,or buy that. Just stick to your spending plan, maintain a proper asset allocation, and enjoy your retirement.
About to Retire
For individuals and couples who are about to retire, the stock market crash may have you thinking that you need to delay your retirement, you may want to think again and retire anyway. The impact of the stock market crash, on your retirement plan, may not be as great as you believe.
Let’s use an example: You and your spouse were planning to retire within a few months. Then the stock market crashes and you lose 20% of your stock portfolio.
Before the stock market crash, you had retirement savings of $500,000, evenly split between bonds and stocks, and now you have retirement savings of $450,000. You are eligible for $1,000 in monthly retirement income.
What is the impact of the stock market crash on your retirement plan?
Monthly Retirement Spending Before Stock Market Crash: $2,667
Monthly Retirement Spending After Stock Market Crash: $2,500
Difference: $167 or 6.3%
The stock market may have crashed by 20%, but your retirement spending plan only decreased by 6.3%, forcing you to reduce your retirement spending by $167 per month. Using Free Early Retirement Software, examine your retirement budget, to find where you can reduce your budget by $167 per month and retire on schedule.
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Here are two reasons why you may NOT want to delay your retirement, and retire on schedule, even after the stock market crash.
1. To Protect Your Benefits
The government is actively trying to take your retirement benefits, Social Security and Medicare, so called entitlement programs. Politicians are stating that current beneficiaries will not have their benefits reduced, however, future beneficiaries are likely to see a reduction in benefits. Read: Rep. Cantor Plans to Rob Retirement
Retiring now, if you are eligible to receive Social Security and Medicare, puts you into the protected category. Delaying your retirement makes you vulnerable to benefit theft.
2. To Lock-In Your Future Spending
The amount you can safely spend for the next 30 Years is determined by your net worth at retirement. If you delay your retirement, say for another year, and your net worth declines even further, the amount you can safely spend in retirement will be lower a year from now than it is today. Why waste a year of retirement and have less to spend in the end?
Retirement in the Future
If your retirement date is more than a year from now, then the stock market crash, will have little or no impact on your Free Early Retirement Plan. Stock markets go up and down, they are cyclical, and over the long run they average out.
And in the long run, the stock market crash, may or may not effect the amount you can spend when you retire. As you saw in the previous example, a 20% stock market correction or crash, only reduced the amount the couple who want to retire now could spend each month by $167.
You should stick to your Free Early Retirement Plan, saving the amount you planned each month towards your retirement savings, and maintain a proper asset allocation. A 20% stock market crash means, that the next time you allocate your savings, you will be buying stocks 20% cheaper.
Everyone
One last point about stock market crashes and retirement planning for everyone. Maintaining a proper asset allocation, is the key to achieving, and insuring a safe and secure retirement.
Everyone, regardless of which stage of retirement planning they are in, should maintain a 70% Stock – 30% bond asset allocation. You should re-allocate your assets at least once per year. Free Early Retirement Software automatically calculates your asset allocation to help you maintain a safe asset allocation.
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Free Early Retirement is designed to take the wondering, worrying, and guessing, out of retirement planning. While everyone else is panicking, and making irrational financial decisions, Free Early Retirement gives you retirement security and peace of mind..
Visit the Free Early Retirement Community to discuss the stock market crash with others.
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