Retiring During A Bear Market or Economic Downturn

Summary:

Retiring can be a wonderfully exciting time in your life. It can also be difficult and stressful, especially if you retire during an economic crash or a global pandemic.

In this show, we will talk about retiring during turmoil. We’ll discuss the challenges and strategies of pulling the retirement trigger when the stock market is in bear territory.

Don’t worry, the answer isn’t to delay retirement…at least not for everyone.

Watch Video Version:

Podcast Transcript

Daniel Wendol
Retiring can be a difficult or stressful time and maybe even an exciting time in your life. But what if your retirement falls during an economic crash or a global pandemic like we are facing in 2020? Does your retirement plan need to change? In this show, we’re going to talk about challenges one might face when retiring during economic turmoil, or a bear market, or even a toilet paper shortage.

Tony Shore
Yeah, toilet paper. Dan, do you know where I can buy toilet paper?

Daniel Wendol
No, I have no idea Tony.

Welcome to another Dolphin Financial Radio show with me Dan Wendol. Alongside me is Tony Shore, who has been feverishly looking for toilet paper for the past couple of weeks with no success.

Tony Shore
Oh, no, we, we we found some in our house. We’re all sequestered here. And I’m working from home of course recording this with you. Not in person but from our mutual homes. I know you’ve been going into the office a little bit as financial advisors. I noted Dan, are on the list of essential workers. Oh, well, during economic turmoil. People need answers.

Daniel Wendol
Yeah, that’s true. They want someone to pick up the phone and call them right?

Tony Shore
Does that make you feel important that you’re not one of the non-essential? I love how they label the rest of us your non-essential.

Daniel Wendol
Does that mean I can show my licenses with the state of Florida and get otilet paper at the front of the line? Does that put me in the same plateau as a nurse or a doctor, I kind of feel bad about that.

Tony Shore
Well yeah, let’s be realistic…and media is considered essential. So I guess I count. I guess I’m essential, which makes me feel good, but a little guilty. I think really, you know, our emergency workers and the people that have to work at the grocery stores and the delivery people, those are the really essential people.

Daniel Wendol
Right? But to lump me in the same category as a nurse, I don’t like it. We’re not on the same level of healthcare workers. But you put me in the same category as a media and I feel even worse.

Tony Shore
I see what you did there. A dig on the media. I love it.

Daniel Wendol
So I want to talk today about people that are close to retirement or that just retired or maybe they were suppose to retire in April of 2020. What are they thinking? What are they going through?

Tony Shore
That’s gotta be tough. Right? Yeah, that’s gotta be tough for those who are ready to retire. And then the stock market drops 37% and you forwarded me this article that’s kind of fluffy. Kind of fluffy. You’re going be referencing that today, right?

Daniel Wendol
Well, I like to do things just to make sure that you’re awake. You know, we’re not going to reference the article at all actually.

Tony Shore
I am. I am because something stuck out to me in the article, and we have to address that and then I’ll let you get into the meat of today’s topic, but it starts off, you know, somebody who was ready to retire because you wanted me to see what you wanted to talk about today. And there’s this article that touches on it a little bit. But they talked to this person who was ready to retire and that’s they say her job – She manages technical writers in Disney World. Hmm. So first of all, I had to stop. I didn’t get much further than that. Because then my mind went What? Why does Disney World have technical writers? What does that mean? What is that job all about?

Daniel Wendol
It has to be writing all the propaganda for the kids.

Tony Shore
No man, technical writer, Disney? It’s a theme park for Pete’s Sake. It’s an amusement park. I don’t get it.

Daniel Wendol
It sounds like a pretty magical job, though.

Tony Shore
Wow, the dad jokes are gonna come in here. But seriously, you know, I hadn’t really before you sent me that and said what you wanted to chat about. I know you’ve dealt with people who are you know, getting ready to retire, planning for retirement for years now. And you’ve worked with hundreds of people, your clients, you’ve helped them with retirement planning. So what happens when there’s a worldwide epidemic and the markets crash, the bonds crash, gold drops, oil is a problem, and you’re getting ready to retire in the next week. What do you do?

Daniel Wendol
You scream. You run to the nearest exit and cry and go into the fetal positon.

Tony Shore
Fetal position!

Daniel Wendol
It’s a safe position. This has happened before. I’ve seen it before. I mean, in December of 2018, the market went down like 19.5% or something. And so there were people that I knew that were retiring right then. The last time it happened and was in 2008-2009. We had a major meltdown. Not the toilet paper shortage, though. That’s kind of new. That’s a whole different story. Retiring when there’s a toilet paper shortage really changes the dynamic but in all seriousness, everything is canceled right now. My kids’ soccer is cancelled. St. Patrick’s Day parade was cancelled in New York City.

Tony Shore
I can’t believe that. Boston, Chicago and New York canceled St. Patrick’s Day, basically. Andthat’s one of the biggest events in those cities.

Daniel Wendol
Right now I’ve seen weddings were canceled. I have clients whose daughter just had to cancel her wedding. So why can’t you cancel retirement? Right? Isn’t that what we have to do here? Sorry, you have to work longer!

Tony Shore
Oh, so is that the only answer?

Daniel Wendol
Come on now! You think I’m going to say that’s the only answer?

Tony Shore
Well, no, I know you’re not. But that’s why I threw you that softball so you could knock it out of the park.

Daniel Wendol
Oh, boy. Delaying retirement, maybe. No, you shouldn’t have to. If you planned correctly, this shouldn’t really impact you financially. Retirement Plan-wise, it shouldn’t. I mean, it doesn’t feel good to see the S&P 500 dropped 35% in a month. I don’t think anyone’s happy about that. Unless you’re betting against it. We did do a show on who wants the market to fail. We did do a whole show on that. We talked about the crazies that want the market to go down.

Tony Shore
Well, I’m sure that somebody like Warren Buffett, every time the market has a major drop, like in 2000, and 2001, and then 2008 and 2009, afterwards, within a couple of years when the market goes up, you realize during that time, when it was at the bottom, he bought a bunch of some stock that nobody was buying for peanuts, and then its value goes through the roof and he makes hundreds of millions of dollars off of it. So I’m sure when the market goes down, you know, he’s gonna profit from it. But most people, most people don’t have that luxury probably.

Daniel Wendol
Well there are opportunities when everyone’s panicking. Did you see that company’s zoom…That the SEC halted trading on one of the companies named Zoom?

Tony Shore
Oh, they did?

Daniel Wendol
They did last week because they had the ticker symbol ZOOM. The video conferencing company that has gone up crazy. Well, there is another company…I don’t even know what they do…called Zoom Technologies or something. It has nothing to do with the video conferencing company, but the ticker symbol is ZOOM. So everyone was buying it thinking they were buying video conferencing company. The SEC halted trading it saying you’re up big time inn a couple of days. I think there’s a problem here. I’m sure the owners are like, let’s sell!

Tony Shore
Can you imagine? Oh, I bet they were selling like crazy.

Daniel Wendol
But when it comes to retiring, you shouldn’t be involved in these types of conversations. You know, the whole Warren Buffet you have to buy when people are panicking…that’s not for people that are just about retiring. We have to bring up a big factor here for people that are retiring in a crisis like that, and that’s sequence risk. We’ve talked about sequence risk, I have a video on it. If you invest money, and you just let it sit, you don’t have to worry about these ups and downs, the roller coaster. It’s only when you go and sell it that you have to actually factor in the timing of the market. So if you invest for 20 years, and the market goes up 10, down 10, up 10, down 10, and in the end it’s up big, that’s great. But once you go to retire, most people will need money from their 401k to live because they don’t have a salary anymore. Once you start taking money out of your assets, then downside matters, because you’re taking money as it’s going down. It makes it even harder for it to come back because you’re pulling out money while it’s falling. If you’re not touching money during this crash, you’re fine. But that doesn’t really relate to a lot of retirees. They are drawing down their assets, and then they go into a tailspin. Because they’re down 10% and they’re pulling 10%. Now they’re down 20%. Now they have to make 25% to get back to where they were. And it’s pretty scary. The solution is simple. First off, you shouldn’t be in the situation, because you should have planned ahead. If you’re retiring now, in 2020, you should have been planning for this at least five years ago in 2015. At that point, you should have been saying, All right, in 2020, I’m going to stop working, I need money. Where am I going to get the money from? The answer shouldn’t be my 401k. It should be from cash or a short term investment that’s not going to be at risk in the market. Right now, you don’t want to be selling stocks, right? You want to be pulling money out of a checking account or CD, something that’s really not at risk.

Tony Shore
Yeah. And there are safe retirement options out there. And there’s give and take with them. I don’t mean to bring up a bad word, but annuities…fixed indexed annuities, that you do get to participate in some of the market upside when it was up, but when it’s down 37%, like this, you don’t take any losses.

Daniel Wendol
Yeah, fixed annuities, fixed indexed annuities, CDs, cash. You know, those types of things look really good right now. The problem with them is they’re boring. They do limit the upside. If a fixed annuity is paying you 3% that’s what you’re getting. No more, no less. That looks really terrible in a year when the market goes up big like 2019 where the stock market’s up 30% and you’re making 3%. You start to get that FOMO. Right? The “fear of missing out”, which can be really detrimental. But I’d rather have fear of missing out of gains in the stock market than fear of missing out on my retirement party. You know what I mean? I’ll give you an example, Tony. I have a couple, a client couple of mine, they’re already retired. They’ve been retired for years. About five years now they’ve been retired. And in December of last year, 2019, they were talking about the money they need pull out of the market for living purposes. In 2020 here’s how much we’re going to need. And the discussion surrounded how they are generating that in dividends with the stock market. But they also have some annuities over here and some cash over there. Were they just fine pulling it out monthly from the stock market? And they said Yeah, but you know, We’re at highs, What if the market tanks? I said, you know what we could do? Let’s just pull what you need out for 2020 right now and put it in your checking account. And they said, Well, what if the market keeps going up? I said, Yeah, well, if the market goes down, you’re going to spend this money anyway. Let’s just take it off the table. So we took it out. And man, did they love that decision! I mean, I’m not saying I knew the market was going to tank. If I did know, I wouldn’t be talking to you. If I really knew I’d be retired already. And I wouldn’t even talk to you ever.

Tony Shore
Oh, I’d be sad. What are you saying?

Daniel Wendol
I’m saying I have no idea what the markets are going to do.

Tony Shore
But you wouldn’t stop talking to me?

Daniel Wendol
So in their case, they took the money out of the market and put it in their cash checking account, and that’s what they’re going to live on in 2020. Now the markets tanked and they’re not worried about what the markets doing. They don’t like to see their accoun values go down. They don’t have that sense of fear that they may have to take less income this year. They’ve already taken their money out. So that’s what the whole point of sequence risk – you put the money that you’re going to need in the next few years aside in something that’s not going to be at risk, so that when you take it, you don’t feel guilty. You don’t feel scared of selling at the bottom. The only thing you fear would be missing the upside, but who cares? I mean, really, who cares? The missing of the upside is insignificant compared to the pain people are feeling when they go to retire and the market is down 30% and they have to sell at a 30% loss. It’s just amazing that this little basic concept of, I guess bucketing is the term a lot of people use, bucketing your money and saying, This is the money I’m going to need short term that should not be at risk. So you shouldn’t be having this conversation.

Tony Shore
……well………………

Hmm. Well, yeah, and interesting, because, you know, you get into the weeds here, and I think what you’re illustrating Dan, is why why it’s so important to have somebody like you. My eyes just start to roll back. It’s like okay, now “bucketing.” Now I have to know what that means.

Daniel Wendol
No, you don’t have to. You just hire somebody. Didn’t didn’t we talked about that last week? Dwayne Wade hired that advisor because he’s said how am I supposed to save millions? At some point you have to talk about this. The hardest part of that, Tony, is not understanding about the bucket approach is figuring out how much you put there. A lot of people have trouble figuring out what they actually need to live off of. That’s so that’s a different thing that I do with people that has provided some value.

Tony Shore
Yeah. Figuring out what you’re gonna need in retirement and then how to begin. And finding out where they’re at and how they get there. Right?

Daniel Wendol
Right. And, you know, what are you need in year one, year two, year three. Then actually, once you know that, putting the money there is usually easy. People still don’t like it because they feel like that they’re out of the game. They’re not going to gain money there. But once this type of event happens, that’s the best thing they’ve ever done in their life. And they’re so happy about it, because they don’t have to delay their retirement.

Tony Shore
Right. And so I think that people don’t want to hear that working longer is the answer. Then they get a little crabby.

Daniel Wendol
Right. Well, what if they didn’t plan though? If they didn’t put the money aside….

Tony Shore
Then working longer might be the answer, right?

Daniel Wendol
I don’t know. So let’s talk about that. Okay, what if you got crushed? What if you were planning to retire in April 2020. You had all of your money in your 401k and now it’s down 20% or 30%. So for instance, Tony, let’s say that someone had a million dollars. They thought, Oh, this is great, I have a million dollars in my 401k. This is my nest egg. I’m going to take 4% because I heard that’s a great rule – the 4% rule. So I’m going to take $40,000 out of my 1 million. That’s not a lot if you think about it- $40,000 out of a million, but that’s 4%. And now all of a sudden, their million dollars is worth, I don’t know. $800,000 because they lost 20% through no fault of their own right? So now that $40,000 is $32,000. That’s $8,000 less a year. That’s significant because their bills aren’t going down. So now watch, government’s going to send you a check for $1,200 dollars. Okay, that helps, but you’re still $7,000 short. So what are these people supposed to do? The listener is saying Yeah, yeah, I should have planned. I should have planned but I didn’t. What now? What can I do? Help me!

Tony Shore
Right, right. That’s the problem. I know you’re not the type of guy to say it, Dan, but it’s an “I told you so” situation. Show after show over the years, we’ve done the show, radio and podcasts, and for anyone who’s listened to more than one show, you got to know, the key is have a plan in place and make sure not all your money is at risk and have it properly allocated. For your clients that work with you, that that listened to you, they made those decisions. The market drops 37% and they’re not panicked. They’re not calling you, right?

Daniel Wendol
Well, they’ll call and say what the hell’s going on?

Tony Shore
Right? Because they’re curious as to what’s going on.

Daniel Wendol
Right. They’re not asking if they have to go back to work. They’re not asking that question. Do I have to delay retirement? Do I have to decrease my spending? My philosophy is you want to spend early in retirement, while you’re young and healthy. You don’t want to hoard your money. You want to spend it early. You want to hoard toilet paper. Or as my grandfather used to say – Terlit paper.

Tony Shore
Terlit paper? Yeah. You almost you almost said the other word. That was great. That’s a good Freudian Slip.

Daniel Wendol
SoI don’t like to see people not spending money early because then they wind up with money later in life that they can spend that they don’t want to spend, you know? I like people to enjoy their money. So then the market crashes like this and all of a sudden they’re like, not only can I not spend what I want, I might not be able to retire. I don’t like to see that. And the other the other thing that happens, Tony, is that because they didn’t have that money set aside, the emotional damage and stress is amazingly high. The whole pandemic thing gets people stressed out as it is. But imagine your retirement party was cancelled and now you’re like, oh my goodness, I have 30% less in my retirement account! The emotional concern can be debilitating.

Tony Shore
Yeah, yeah, it can be. I mean, people get stressed. And you’re right, that stress and that burden, it just gets heavy. And so I think the answer is is don’t don’t go it alone. Number one, get a plan.

Daniel Wendol
Get a plan. That’s it. You have to sit down and do the math. It’s not too late. All right, you already got crushed. You got punched in the face. Okay. Now, what do you? Just cry in the fetal position, like Tony suggested?

Tony Shore
Wait, that was you! I just reiterated it and laughed at it. But Dan, here’s the deal…What do you do? I mean, what’s the answer?

Daniel Wendol
You have to sit down and do the math. And I’d rather know that I don’t have enough then not know whether I do.

Tony Shore
You say that a lot. They didn’t do the math. What do you mean by that?

Daniel Wendol
All right. So you have to create the income plan. You have to say, all right, I was planning to retire in April – how much do I need income-wise? Then once you know the income needs, that’s usually hard, the next question is, Do I have enough to create that income? A lot of people don’t connect that. They say I need $50,000 a year to live. Do I have enough in the bank to pay for that? Yeah, I have a million dollars in the bank, so I can live for, you know, 20 years. If I take $50,000 per year…No…that’s not how you do it! You figure out how much of that money you need to allocate every year. Like I said, you create a bucket. How much am I going to need to pull aside for the next three years, and then years five through 10, and then 10 through 20, and 20 plus. If you have money that you’re going to need in 20 years, what’s wrong with keeping it in the market? In fact, as you go through retirement, you’re going to have more assets at risk. It’s counterintuitive, but you’re going to want to put money aside now in the stock market for years 15 plus. The money you need in the short term, you need to take out of the market. So don’t panic is the is the answer. Do the math. It may not be exciting to sit down now that you lost 30% and see if you need to cut back. But that’s what you have to do. You have to. You might be forced to keep a level of risk that is uncomfortable or not ideal. You might be forced to sell some assets in order to live in the next year. But it’s better than just winging it and hoping and crossing your fingers that the market is going to come back. Oh, it always comes back. Yeah, it does always come back, but maybe not in the timeline you need. Do you want to really wait five years before you start living the retirement life you want? You’re going to be five years older. That’s not fun. You have to sit down and do the math. It’s going to be painful if you had all your money at risk, if you didn’t plan ahead. Like Tony said, I told you so – that was pretty mean spirited. You were what really picking on the listener.

Tony Shore
What!? No, no. But you have been harping on this for a long time and I hate to use the word harp, but but you’ve been talking about it, I should say, for a long time, so hopefully those that have been listening, have taken it to heart. For those who haven’t right now , they’re saying Oh, yeah, that’s why Dan says I need three to six months income in emergency savings. That’s why Dan said I need some money in safety and some in the market. That’s why you need to do a risk analysis ris. Is that what we’re talking about here?

Daniel Wendol
Yeah, risk and retirement income. You need a retirement income plan. You can’t just wing it. Do I have enough? You have to tone down the risk on the short term when you’re retiring. It’s kind of like a roller coaster- your risk level dips when you go to retire. But as you go through retirement, your risk level goes up and most people don’t see it that way. A lot of times they just kind of go with the flow of what their retirement target date fund in their 401k suggests. It’s not right. Maybe it’s too late. Maybe you are in trouble. Another alternative is to look at your home. Downsizing might be the answer. A lot of people have home equity that they just don’t realize as an asset. If you’re going to downsize in retirement, do it and then free up that equity and maybe use that money to live while you let your stocks ride out the storm. You know, it’s not a lost cause. I know we’re joking about it, but you just can’t go in the fetal position and stick your head in the sand. You have to actually be proactive. Start doing math. You didn’t do the math and now you’re here, you’re stuck. Now you have to do the math, right. I mean, what else is there to say? You can’t just pray because that’s just certainly not going to get get the job done. Or you just have to work longer.

Tony Shore
Right?

Daniel Wendol
Do you want to do that?

Tony Shore
Well, you know what I mean. We joke about working longer being so bad, but a lot of people and we’ve done shows on this, but people are living longer. People are working longer anyway. I mean, a lot of people now working until 70. It’s becoming commonplace. Maybe that’s not the worst thing. People that stop working at 60, that’s great. But many of those same people go downhill faster if they don’t have a purpose, right?

Daniel Wendol
Yes. We did do a show on that. If someone says they want to retire at 60, and it’s 2020, and the coronavirus hits, and they lose big, my objective would be to meet with them and say all right, what can we do to keep you retiring at 60? What can we do? Because it might not be that you have to keep working. It might be we need to just shift your assets around. We need to change the big picture strategy. A lot of people usually have what they need, they just don’t realize it because they’re using some rule of thumb, or they’re too skewed in one asset class and they get nervous. If you sit down and just rebalance, readjust, come up with a new plan going forward, it might just work. You may not have to go back to work. It’s worth doing the math and it’s worth not just assuming that you’re in trouble. The market has already come back a little. We might go back down maybe, but there’s no good time to plan this out like the present. You can’t wait until the market comes back. Just do it now. Get it done now, especially if you’re close to retirement, if you’re within five years of retirement, you should be having this conversation now. Now’s the ideal time to have it actually.

Tony Shore
Right now is the time and people think. Now it’s important for everyone, I don’t care how much or how little they have, if you’ve got millions in the bank or your paycheck to paycheck, you got to reevaluate where you’re at right now. And based on the new deal, basically, I don’t know what to call this, but, you know, we’ve changed, things have changed. I don’t think we’re going to go back. Things will continue. This too shall pass. But it’s also unprecedented what has happened.

Daniel Wendol
It’s a black swan event as they call it, but we’ve had those in the past. It was a once in a lifetime event…No, it’s not. These things happen. They’re really difficult to plan for, but you have to plan them. You can’t just ride it out as a lot of people think they’re going to do. Right now, you’re probably really emotional. That’s the perfect time to bring someone else in that is going to prevent you from making a rash decision.

Tony Shore
Yeah, you don’t want your emotions to dictate financial decisions, right? I mean, that’s the bottom line.

Daniel Wendol
Yeah, that’s true. So I guess I’ll wrap up the show by saying, if you’re in a situation that you’re looking to retire in this crazy time, don’t panic. Stick with your plan if you created one. Hopefully you did. And if you didn’t, now’s a perfect time to build one and it’s cliche, but you might as well spend the time to create the plan now.

Tony Shore
Yeah, it’s a good time. Now’s the time to really sit down and take a look at your spending plan and just all of the financial aspects of your life need to be reevaluated right now. And you don’t need to let your emotions do it. Work with a financial professional like yourself, Dan, well said. Obviously, you’re not meeting in person with people right now. You’re not doing your educational workshops. You’re not going to colleges doing financial seminars or schools. So how can our listeners get a hold of you? They can still meet with you just virtually correct?

Daniel Wendol
Yeah, exactly. I’m been using Skype, zoom, and other technology. A lot of people just like to talk on the phone. I mean, especially my clients, they don’t need to see my face. I’ll email them documents and we’ll talk via email. But if you’re new, and you want to get to see me and because I enjoy face to face meetings, so this is really painful for me, but if you’re want to talk and you want to share the screen, I could do that. I use that technology. It’s very simple. So I am fully meeting with people now.Especially with all this volatility, people really want that guidance. And so if you’re interested in that, that’s easy. We could set up a time and i don’t charge for these initial consultations.

Thanks for listening to Dolphin Financial Radio based in the Clearwater, Tampa area.