As someone who writes about investing and personal finance, I’m well aware that a stock market crash can be stressful at any time. But I also know that market declines are no cause for panic when retirement is decades away.
But what happens if the market crashes just as you are about to retire? Talk about bad timing.
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Unfortunately, it’s a situation you may not be able to avoid. But it’s important to have a plan in case that happens. Here is mine.
It’s one thing for the stock market to crash a couple of months after you retire. But if the market crashes before I make my retirement official, the first thing I’d probably do is make plans to extend my career a bit.
Now, to be fair, my hope is to continue working in some capacity in retirement. But when I talk about retirement, I include my spouse. Their work tends to fall into the “you do it or you don’t” category. I’m not sure how easy it would be for him to do what he does part time.
So when I say I would delay retirement, what I mean is that both You’ll probably try to keep working a little longer than planned. However, there is no guarantee that we can do this, so it is not our only solution.
My husband and I have a vision of what we want retirement to look like. But we are also flexible in that vision.
We both recognize that if the stock market falls, we will probably have to cut spending to some extent to preserve our retirement savings. What would that be like?
A large portion of our plans involve RV travel. But we can do it through cheap camping and cheap groceries, or we can do it through luxury RV parks and restaurant food along our travels.
We are not strangers to difficulties. And we’re willing to do it if it means saving thousands of dollars a year at a time when we may want to minimally dip into our IRAs and 401(k)s due to market conditions.
One of the most essential components of my backup plan is a cash reserve. A good rule of thumb is to have enough cash in retirement to cover two to three years of living expenses. This gives you the opportunity to avoid dipping into your portfolio during a downturn, thereby locking in losses that you might struggle to recover from.