I'm Close to Retirement and the Market is Crazy…Now What? (EP.205)

0:28We all need to make smart decisions with our money. flying really to all corners of the country for a wide variety of reasons. And truthfully, I've probably traveled more than the average person ever since I was a little kid. And it's not just the number of flights. It's the extraordinarily diverse set of locations, planes, seating arrangements, and weather conditions. So when I say I'm an experienced flyer, I want you to keep that in mind because on my most recent trip, we hit a patch of turbulence while flying above the Rocky Mountains, and the pilot had warned us it was likely, so it wasn't really a surprise.

1:03And as expected, right when we hit that turbulence, the pilot's calm voice soon comes over the speaker, reassuring us that the turbulence was routine and temporary. Even still, despite all my flying experience, the moment the turbulence hit, I found myself tensing up. I didn't used to be this way. I know as a kid, turbulence didn't phase me in the slightest. And even now, I am not even remotely close to what you'd call a nervous flyer. I'm really not nervous about the plane crashing or having any issues. But I suppose having a wife and children eventually activates some primitive instinct that makes my mind jump into what would it be like if the plane crashes?

1:48With nearly two decades of coaching clients through market turbulence, it's easy for me to draw a connection to investing. Even the most seasoned investors tense up during moments of market turbulence. They've experienced cycles before and understand it's simply the cost of earning higher long-term returns. But because each downturn comes with its own unique narrative, each period of volatility seems to affect different groups of investors differently. In this most recent market decline, it was clear, to me at least, that those nearing retirement or having recently retired felt the most uncomfortable with the turbulence.

2:28Now, much like my experience in the airplane, these investors, I think, generally recognized on some level that the market volatility is normal, temporary, and even something that a thoughtfully designed financial plan can handle. But that recognition alone doesn't always ease the anxiety they feel. So in today's episode, I want to talk through exactly what you can do when you're close to retirement and the market feels crazy. But before we jump in, I want to quickly point you to the link at the top of the episode description in your podcast app. It's an opportunity to sign up for my email newsletter where I'll soon be making a very big announcement.

3:08So be sure to sign up so you don't miss out and feel free to hit reply to any email you receive from me. I read and respond to every email and connecting directly with listeners like you is genuinely one of the most enjoyable parts of doing this show. Now, let's dive into a few insights I have for people nearing retirement during a period of market turmoil. First, I think it's crucial to remember that the market and your portfolio are not the same thing. In 2025 alone, we've already seen a significant market rollercoaster. At one point, being down nearly 20 % from the peak, and yet as of today, up just a little bit more than a percent year to date.

3:52Headlines scream volatility, but your portfolio is likely a thoughtful mix of stocks, bonds, and maybe even some cash. This distinction matters because bonds frequently offer stability when stocks experience declines. For example, looking at historical data, bonds provided positive returns during notable downturns like in 2008, 2018, and early 2020, helping cushion portfolio losses. And of course, cash doesn't lose money, at least on a nominal basis. Another layer of protection comes from international diversification. This latest bout of volatility, for instance, didn't impact non-U.S. stocks in quite the same way.

4:35In fact, during many periods when U.S. stocks struggle, having exposure to international stocks can help improve your overall returns. I explored this idea in greater detail earlier in the year in episode 190 titled The Hidden Risks of U.S. Stocks and Why Global Diversification Still Matters. If you missed it, I highly encourage you to check it out as it underscores just how important a globally diversified approach can be, especially as you approach retirement. So you can also go see that episode easily linked in the show notes at the longterminvestor.com. And let me close out on this point by saying again that when you hear alarming headlines about the market, pause for a moment and remind yourself that the headlines aren't describing your entire portfolio.

5:25They're just describing one piece of it. I think staying grounded in this perspective can make all the difference in navigating market volatility with confidence. Now, another important consideration as you approach retirement, or if you're recently retired, is that you don't need to tap your entire portfolio all at once. While this might seem obvious, I've found that some investors overly focus on the short-term losses inadvertently shrinking their mental time horizon to match the feedback that they're getting in the market. And as a result, they mistakenly feel their entire financial future is immediately at risk.

6:03Certainly, there are long-term implications if you experience a prolonged decline right at the start of retirement. However, the reality is you're only withdrawing enough to cover your current year's living expenses, not your entire portfolio. Ideally, you would enter retirement with one to two years worth of living expenses and cash. And this cash cushion, what that really does is allow you to comfortably cover immediate spending needs during market downturns without needing to sell investments at depressed prices. And consequently, your portfolio is afforded the necessary time to recover, safeguarding your long-term financial security.

6:41Now, if you haven't yet set aside enough cash, consider prioritizing this step as you review your financial plan. If immediately building a cash reserve isn't feasible, another prudent strategy could involve relying first on your bond holdings to avoid selling stocks at low valuations. Now, I covered this process in greater detail in episode 40, titled How to Prepare for a Market Downturn. Now, we're in episode 205. Scrolling all the way back to episode 40 is quite a task, but I do want to point out in this episode, and if you do go back and listen to that one, that following this approach requires considerable discipline to avoid slipping into market timing, which can be really emotionally challenging and obviously financially harmful.

7:30I'm going to risk repeating myself here a little bit. It's so important that you always keep in mind that market turbulence is temporary. So having a structured withdrawal strategy supported by cash or stable bonds helps protect both your financial security and your peace of mind throughout retirement. To wrap up, I really wanted this episode to address retirees who are instinctively shorting their mental time horizon, thinking, I'm retiring soon and I can't afford a downturn right now. Yet, realistically, your retirement may last several decades. If you're retiring around age 65, actuaries would suggest you have about 20 years ahead and maybe even longer if you're thinking about the wealth you want to leave to future generations.

8:18Maintaining this long-term perspective is crucial because it helps study your emotions and allows your financial plan to function as intended. We are going to always have those downturns occur. They're going to occur with a similar magnitude and frequency as they have in the past. And so I think managing this perspective, it becomes a little more complex as you transition from accumulation to decumulation, that phase when you begin to withdraw your investments, because historically, you just we're told right out the storms. And honestly, I've been talking about this a lot lately. I think that the path to accumulation is so much easier.

8:56It's a lot like when you're going on a hike and yes, it can be hard and it takes work, but you're only halfway there when you get to the top of the hike. You got to come back down and the footing is different. It's a little trickier. You're a little tired. I mean, that's to me a little bit what that accumulation versus decumulation phases are with your finances. When you're decumulating, there's no single standard playbook that you can follow. You have to carefully navigate taxes, you have to optimize your withdrawal strategies, you have to effectively balance short-term spending needs against long-term financial stability.

9:30Due to these complexities, I'm obviously biased in saying this, but I really do think the decumulation phase often significantly increases the value of professional financial guidance. Now, I hope today's episode has been helpful. If it has been, please take a moment to rate and review the podcast. Your feedback, it doesn't only help me improve, but it also helps other discover and benefit from the show. As always, thanks for listening. And until next time to long-term investing. Thanks for listening to the Long-Term Investor podcast. To access free financial resources and submit questions to be answered on the show, visit thelongterminvestor.com.

10:13Peter Lazaroff is an employee of PlanCorp and BrightPlan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or BrightPlan. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.