The Retirement Mistake That Hurts Most During Economic Volatility
Written by
G. Brian Davis
Edited by
Zuri Anderson
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When stocks march steadily higher, investors tend to view them through the lens of average historical returns.
Then a recession hits, and all you read in the news are panicky headlines — which is precisely where retirees and soon-to-be retirees get into trouble.
The No. 1 Retirement Mistake in Volatility
“The most damaging mistake during market volatility is selling investments, especially illiquid assets that tend to sell well below fair value in downturns,” observes certified financial advisor (CFA) Wenjia Liu of Teapot Investments.
Panic selling helps explain why the average retail investor underperforms stock indexes like the S&P 500, as DALBAR‘s annual Quantitative Analysis of Investor Behavior study shows year after year.
Investors fail to stick to their investment plan when markets hit the fan — and that’s if they have a written investment plan at all.
Other Retirement Mistakes During Downturns
Financial planner Daniel Gilham of Farther urges retirees to commit in writing to an investment plan. He said, “That plan should cover selling strategies and withdrawal rates, and also feature rebalancing and tax loss harvesting.“
Retirees can preserve their nest egg longer, even with a higher withdrawal rate, if they shrink their withdrawals during downturns.
“Don’t withdraw the same dollar amount during market corrections,” urges Jarad Stolz of Diversified Insurance Brokers. “Adjust your spending and withdrawals so you don’t deplete your funds so fast.”
That goes doubly in the early years of retirement, when sequence of returns risk applies most. Consider keeping less of your allocation in stocks during those high-risk early years, before potentially moving some money back into stocks.
It also helps to turn off the ticker tape and not watch your IRA balance every day. It only feeds the fear and the urge to make emotional selling decisions. Stick to your plan, even when it feels hard. That’s why you created in the first place.
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