Should you retire now or wait?
The stock market has been turbulent this year, and the S&P 500 is down nearly 20% from its peak in early January — closing in on bear market territory once again this year.
Many investors are also worried about a potential recession, adding to the stock market concerns. With all of this volatility, is it still safe to retire right now? Or should you hold off a few years? It depends on a few factors.
1. Is your asset allocation appropriate for your age?
Asset allocation refers to how your investments are divided up in your portfolio.
When you’re younger, it’s generally best to invest primarily in stocks, with little money allocated toward bonds and other conservative investments. While stocks are higher risk than bonds, they also see higher returns, on average. And if the stock market falls, you have plenty of time to let your investments recover.
As you get older, though, your portfolio should lean to the conservative side, more heavily allocated toward bonds and less to stocks. Bonds generally see lower returns than stocks, but they’re also less affected by market volatility.
There’s no set rule as to what your asset allocation should look like. A general rule of thumb, though, is to subtract your age from 110, and the result is the percentage of your portfolio that should be allocated to stocks. If you’re 65 years old, for example, you may aim to allocate 45% of your portfolio toward stocks and 55% toward bonds.
2. How strong are your savings?
If your savings are falling short, it may be more challenging to retire. Even with proper asset allocation, your retirement fund could still lose value in the short term if the market is in a slump.
This is normal and not something to be overly concerned about, as the market will likely rebound eventually. However, it can sometimes take years for the market to fully recover from a downturn. If your savings are sparse to begin with and a downturn shrinks your retirement fund even more, your first couple of years in retirement could be more difficult.
How much you should save for retirement will depend on your unique situation. But your savings may need to last 20 years or more, so before you retire, it’s wise to take a realistic look at whether you’re on track.
3. How much can you depend on Social Security?
Social Security benefits can go a long way toward bridging the gap between what you have saved and what you need to retire comfortably.
If you haven’t already, now is a great time to check your benefit amount online. You can do this by creating a mySocialSecurity account, where you’ll see an estimate of your benefit amount based on your real earnings throughout your career.
Keep in mind that this is the amount you’ll collect at your full retirement age (FRA). If you file before your FRA (as early as age 62), your payments will be smaller. On the other hand, if you delay Social Security past your FRA (up to age 70), you’ll receive larger checks each month.
Social Security can be a significant source of income in retirement, and your checks won’t be affected by stock market fluctuations. Depending on how much you’re receiving, your benefits can make it easier to retire during periods of market volatility.
Market turbulence can be intimidating, but that doesn’t mean you can’t retire. By taking a few extra precautions to ensure you’re ready, you can head into retirement as prepared as possible.
