When the market kinda crashes, think covid or the Iran war most recently and what not, people kinda freak out about their investment accounts, and usually you see some people swooping in to comment something along the lines of – "as long as you're not about to retire this doesn't matter you will recoup your investments over time, don't pull anything out" etc etc etc.
My question is, are the only people who are screwed people who literally we're about to retire TOMORROW in a market crash? Like I look at my fidelity account and I'm already back over what I was before the Iran crash, which took about 2 months total. Does this question make sense? Like lets say I have 1 mil in my 401k and I'm retiring tomorrow, and then it crashes and now it's down to 800k, it just doesn't seem like a huge deal to me because it seems to bounce back very quickly?
I was a teenager during 2008, so I don't have experience with that time, have we just not seen a really long, debilitating crash in awhile? I guess it just seems like the crashes don't seem to stay down for longer than a few months, and even then, it's not like you pull your entire retirement savings out at once, so it'll recoup pretty easy. Idk, lol.
I have a question about market "crashes" and retirement accounts?
byu/wingbat13 inpersonalfinance
Posted by wingbat13
5 Comments
>or the Iran war most recently
The market is an an all time high right now.
>My question is, are the only people who are screwed people who literally we’re about to retire TOMORROW in a market crash?
No, the only people who are about to be screwed are those that are about to retire and did not adjust their allocations. Normally your investments are far less risky the closer you get to retirement.
this is why people suggest owning bond or other assets with low correlation to stocks; and why when you retire can have big impacts (sequence of returns risk)
they could also choose to delay retirment or unretire
>My question is, are the only people who are screwed people who literally we’re about to retire TOMORROW in a market crash?
And people who are already retired but yes. This is why when you approach and enter retirement you should diversify instead of being 100% in stocks.
>I was a teenager during 2008, so I don’t have experience with that time, have we just not seen a really long, debilitating crash in awhile?
We haven’t had a proper lost decade for a long time now but they do happen. Stocks were basically flat from 2000 to like 2013.
What you’re referring to is known as “Sequence of returns risk” in case you need a search term to learn more. This involves the scenario where the market performs poorly around the time someone is planning to retire.
One way to think about it is if your investment value drops by 20%, the fixed-amount-of-dollars you pull out that month to cover your living expenses is 20% ‘more expensive.’ You will deplete your accounts more, and have less in the account to generate interest/appreciate going forward so this compounds..
If it’s a short downturn with a strong rebound, the effects are minimal. But it’s a 5-year recession or worse, you could run out of money before you had planned.