Are you planning for a stock market correction

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81903091#Comment_81903091

As retirement approaches most people will still have a 30 year time horizon, but the strategic goal will change from growth towards lifetime income and, maybe, legacy generation. Many retirement gurus, particularly in the USA, have sought to apply the same strategies of growth and the efficient frontier used for younger investors to generate retirement income. This depends on applying historical returns to future markets and your point about shrinking timescales and the income risk associated with a fall in markets should be upmost in an older person's mind. So an income generating portfolio is going to be different from a growth oriented one. Products like annuities and bond ladders become more important, but those are also long term beasts.

GazzaBloom

Am I planning for a stock market correction? That was the OPs question, let's assume he means crash, as has been pointed out above a correction is typically identified as a circa 10% drop and happens quite frequently.

I think the approach differs depending whether you are still accumulating or in retirement and spending down.

In a way yes, I am prepared. On commencing early retirement in January 2025, a third of our annual living expenses is covered by fixed income (DB pension). To cover the rest I have set our retirement portfolio to a rising equity glide path where we have cash and defensive assets allocated to cover the 8 year gap to state pension (allowing for estimated inflation and interest) which will be consumed first. That leaves the rest in growth equity index trackers (which are US and Tech heavy) to be left alone until the cash is gone. By then, with the state pensions in payout, our drawdown needs to cover living expenses reduce to almost nothing.

I have no idea what will happen to the stock market during the next 8 years but when it crashes we don't need to draw from the falling equities so we have protected ourselves from early sequence of returns risk. After that drawdown will be discretionary so the impact of subsequent crashes will be much reduced.

If I was still accumulating I would be 100% equities and see crashes as a 20-30% sale getting more for my money with monthly pension contributions. In fact that's exactly what I did in 2020 and 2022 as the Tech stocks slumped, I increased my monthly payments into equities, especially the Tech fund we hold.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81903183#Comment_81903183

I'm in a similar situation having "grauanteed" income from sources that cover my retirement spending and a rising equity glide path that, after a decade of retirement, is now 85% equities. My capital isn't really important for my retirement income and so I don't mind taking a lot of risk with it, although the initial studies into rising equity glide paths were to investigate if they could produce more income with less risk of failure for retirement drawdown. I did strategic planning for retirement in an effort to avoid tactical asset allocation changes in fear of a crash.

Back in the 1980s I left the UK, but decided to pay voluntary Class 2 NI so that I'd get a UK SP. In a few years I will start both US social security and UK SP and those two will give me a very comfortable index linked amount each year. Fifteen years ago I paid off the mortgage on my home and a rental apartment to reduce outgoings in retirement and the flat produces an income largely decoupled from stock markets. About a decade before early retirement I took a job with an index linked DB pension. These diversified income sources have allowed me to largely ignore the possibility of a crash.

[Deleted User]

https://forums.moneysavingexpert.com/discussion/comment/81903771#Comment_81903771

Our respective situations are not too dissimilar, albeit there is an age gap. I also recieve US SSc and UK State Pension, as well as other income. In the course of my retirement thus far I have come to realise that no source of income is ever truly safe. Last year I was informed by SSc that my retirement benefits would cease, despite them having been paid for the prior 13 years. A few years prior SSc anounced the same benefits would be taxed at source, without the possibility of me being able to recover that tax, that reduced my payments by 24%. The all out cancellation of my benefits turned out to be a misguided attack by DOGE trainees but neverthless resulted in the suspension of benefits for three months. That event made me realise that a change in governement policy could easily result in the cancellation of benefits, both US or UK, for non-residents. Ditto the potential for non-UK residents to recieve the Personal Allowance, which would also have a significant impact. The message is that you shouldn't take the future for granted because even things that seem rock solid, can turn to silt very eaily.

GazzaBloom

https://forums.moneysavingexpert.com/discussion/comment/81903771#Comment_81903771

That sounds great. What I like about having set down the path of the rising equity glide path to State Pension is that once the initial allocation is set with the risk off/fixed income put aside to bridge the gap, you can pretty much sit back and get on with life without feeling the need to change anything or worry about a market crash.

It will still feel horrible seeing the value of the equities side fall sharply but it will recover over time and you don't compound the problem by drawing down from it at a tricky time.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81904305#Comment_81904305

Yes, we live in a time where politics can change things all too easily and I'm not as sanguine as I once was to have my assets in the US when contemplating a return to the UK. My tax planning might end up for nought at the whim of someone in government who want's to mess with cross border payments. If I do move I will make large gifts to my family before I leave the US to reduce my UK inheritance tax exposure and transfer enough to the UK to be comfortable living off the interest.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81904310#Comment_81904310

I've always lived quite simply; that's part of the reason I've been able to consistently save and invest. I now find myself retired and living much as I did when I was working, but with a pot of money in various investment accounts that I don't ever plan on spending. So I don't think about it other than to try to minimize what my heirs might pay in tax. I count this as one of my retirement luxuries that keeps my blood pressure under control as the markets go up and down.