Bear Market/Crashes: how do Retirees Deal with it?

ams25

So maybe this is the beginning of a crash, correction, bear market, buying opportunity or maybe its nothing.

And seems to me that we are really still very early in the accelerating shift from defined benefit pensions and annuities to more and more people having to live off a pot of savings and investments.. and to be able to deal with investing that and handling market sell offs as a norm. Not sure how well equipped people are for that.

So whatever the current market movement is, it's a good opportunity to raise this question for retirees who have stopped regular work and rely on savings and investments (not defined benefit pensions/annuities of private or state varieties) for the majority of their income - how do you (or how do you think you will) cope with seeing a 10, 20, 40% portfolio decline and knowing you are reliant on the same portfolio for your future income.

- will you ignore it and just carry on because you know markets go up, down and eventually up again
- will it make you grumpy and irritable with loved ones
- will you buy more equities because you saw this coming
- are you comfortable your portfolio is structured to ride out the more common 1-3 year downturn, or the less common 5-10 year downturn/poor returns (or even the 1966 retiree nightmare of 17 years of poor returns and high inflation :eek:)

I've lived through several crashes and bear markets but as I was working it was not all that difficult to ignore them because at the end of the day i didn't need the money anytime soon. In 2008 I (thought) I was around 15 years from retirement, or longer.

I have tried to structure my asset allocation to suit what I think is my risk tolerance, not to need to sell equities any time soon and even have some funds available if I am brave enough at some point to buy. I believe I can cope with a 3% withdrawal rate over the long term which according to most experts should be a safe withdrawal rate.

I've read loads to educate me that I am well set up so I should be fairly relaxed. So far the latest global sell off has not bothered me much, but if (or when) it proves to be the next bear market, we haven't seen anything yet.

So if you have previous experience, as a retiree, how did you cope and what advice for us newbies.
If, as many here are I suspect, this (or whenever) is going to be the first time as a retiree dealing with a major sell off, how do you see yourself dealing with it. what suggestions do you have for this community here to help them deal with it calmly and to maintain low stress levels.

As they say, a problem shared.....

Triumph13

If this does turn into a full blown bear market, then it may test my resolve to retire this autumn, but I think I'll still go ahead. My strategy will basically be just be to hide under the duvet until it goes away. Relax, chill out, don't do anything expensive and definitely DON'T panic sell.
I'm pretty sure I'll be fine as I have lots of slack in my budget and plenty of things I want to do that will cost very little eg catching up on my huge pile of unread books. When the markets recover then I'll do all the expensive things on my list.
One thing that does worry me though is the wider economic impact if lots of people behave like me. In the good old days of DB pensions and/or annuities pensioners probably acted as a dampener on economic swings - they kept a constant level of spending / demand throughout because of their constant income. As drawdown gets more common, I worry that they'll start to act as an amplifier instead - translating market falls into real economic downturns as they rein in their spending in response.

dunstonh

Bear Market/Crashes: how do Retirees Deal with it?

Absolutely no differently to how to when the invested on day 1. You know they are coming. You will see many of them during the rest of your life. So, why should you act any differently when they arrive?

how do you (or how do you think you will) cope with seeing a 10, 20, 40% portfolio decline and knowing you are reliant on the same portfolio for your future income.

10% is not classed as a crash. Its correction territory and you see those every 1-2 years. 20% - last one was in 2015. That is a crash. 40% is more generational and depression level.

Having been through a number of these, its a case of "here we go again". Been there done that, come out the other side as per usual.

Realistically, if people are investing within their risk profile and capacity for loss, and not drawing silly amounts, then there shouldnt be an issue.

This is also why your drawdown strategy should maintain a cash float for 18-24 months.

Anonymous101

I'm a long way off retiring but as I'm planning to retire early, hopefully by 50 or 55 at the latest, I have thought about it.

It depends where exactly I am at the point of the decline in the market. Firstly a large crash can easily put retirement back by a few years by reducing the size of your pot. If I was yet to retire then I'd think very carefully about the timing of stopping to contribute to a pension / savings and beginning to draw down upon it.
It may be that a couple of additional years working will see you through the bear market and leave you very healthy when markets improve. Another option is to stop contributing to a pension but not commence full drawdown. Essentially change jobs to something part time or lower paid just to see things through.

If you're already retired then not panicking and monitoring the situation is essential. Perhaps you don't need to do anything at all. Maybe watching your spending a little more tightly is in order or maybe even going back to work part-time or even full time is an option.

I think the trick is not to panic and make sure you're aware of the implication any down turn would have on your portfolio and subsequent income.

redux

What happens that defines when this could be happening? Something that was up 7% in a month or 14% in 3 months has dropped back 2.5% today, up 1% since lunchtime.

dunstonh

redux wrote: »

What happens that defines when this could be happening? Something that was up 7% in a month or 14% in 3 months has dropped back 2.5% today, up 1% since lunchtime.

Media does love its scaremongering though. You are already seeing words like plummet, decimated, plunge, tumble. All on relatively minor volatility. They are going to run out of verbs when a real drop occurs.

OldMusicGuy

I retire in 4 weeks. I set my strategy to handle this based on my risk profile (I am very risk averse). I have around 23% of my DC pot in cash, plus a similar amount in cash or near cash outside my SIPP. The remainder (about 55% of my total wealth excluding house equity) is invested in a mix of passive tracker funds and an active dividend focused fund.

The invested money will be left as it is for 10 to 15 years and we will live off the cash and near cash (and SP) in the meantime. I'm happy to have risk free cash investments in ISAs and bond ladders at 1.7% to 2.3% to provide secure funds whatever happens (as I have posted many times, I don't believe in "inflation" so this level of interest is fine for me right now). The invested money will be able to ride out any market crashes in the next 5 years or so and is there to provide for us in later life. We will still have quite a bit of cash as well, that will not be completely spent in the next 10 to 15 years.

I will probably draw down maximum tax free UFPLS annually until SP age (in 5 years) and make up any shortfall from cash outside the SIPP. I may invest some of the cash left in the SIPP after 5 years depending how things go.

The biggest thing I have learnt spending time on MSE is to define a strategy that meets your risk profile and whatever you do don't start fiddling with things when the market takes a turn downwards.

bostonerimus

I wouldn't rely completely on volatile investments for income. So you might look at income from a rental property (although that's got it's issues) or maybe partial annuitization. Don't use overly optimistic projections in your retirement planning, be a bit conservative and have a pot that will fund your retirement with some headroom for unforeseen expenses etc.

1) Have a realistic withdrawal rate.
2) Have an asset allocation that has historically supported that withdrawal rate
3) Stick to your asset allocation by rebalancing through market cycles.
4) Have a detailed budget so you know where everyhting goes and a plan to reduce your
spending in bad times.
5) Have a buffer of cash/savings accounts/short term bonds that will take you through at least 2 years of spending so you can avoid selling into a down market.

kidmugsy

dunstonh wrote: »

They are going to run out of verbs when a real drop occurs.

But not nouns. Sharegeddon!!!

westv

Dow Jones down 1500

Tiiiiiimber!

Sorry, I just had to get that off my chest!

Sterlingtimes

OldMusicGuy wrote: »

I retire in 4 weeks. I set my strategy to handle this based on my risk profile (I am very risk averse). I have around 23% of my DC pot in cash, plus a similar amount in cash or near cash outside my SIPP. The remainder (about 55% of my total wealth excluding house equity) is invested in a mix of passive tracker funds and a

My approach is similar. I'm also risk adverse but I do believe in inflation! Even when you know how to be financially rational, when it's your own money and your own livelihood then there may be an urge to make adjustments. I have the SIPP portion of my pension layered into five years in cash, ten more years in absolute return type funds (including bonds and gilt-edged stock) with a reduced equity exposure, the remainder year in various equities. Perhaps near-term inflation can be disregarded, but I feel that anything could happen in the decades to come. My wife is 12 years younger than me so this may skew my thinking.