During the last six years, we’ve enjoyed a bull market. A bear market (defined as a 20 percent or more drop from the market’s high) will undoubtedly come. So people often wonder if they can (or should try to) time their retirement to anticipate the expected trajectory of the stock market.
I say no. In spite of marketing that tells investors to accumulate a nest egg of a certain size prior to retiring, I meet a lot of people who retire when the “pain” of working outweighs a shortfall of income. For example, I recently met a 60-something client who said she felt she still didn’t have enough money to retire. But she quickly added how unhappy she was with her work. Her income hovers around $70,000. And with her savings (plus Social Security), we calculated she’ll have a retirement income of approximately $32,000.
Ultimately, she is willing to sacrifice the additional income she would earn from staying employed for a better emotional quality of life. So, no, I don’t think someone should wait for a recession and then retire. I don’t think they should wait to retire when they feel the economy is enjoying good times, either. If someone actually knew which way the market was headed, then they would surely have millions of dollars in their 401(k) plans from having successfully timed the markets.
Instead, people tend to time their retirement around other factors such as buyout incentives, paying for a child’s wedding or providing for an ailing spouse or parent. It’s a perfectly valid strategy to time a retirement to coincide with one of the aforementioned events.
Similarly, most people sell their homes when they need to, instead of trying to divine market conditions, which nobody can definitively predict. From my experience, nearly 60 percent of today’s retirees felt they would work for a longer period of time than they ultimately did. This is because the circumstances of life or economics or both pressured them to leave the workforce earlier than planned. With this in mind, it’s best to begin saving sooner or (to the extent you can) increase your saving to ensure you’re comfortable when events beyond your control occur.
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