Market Downturns in Retirement

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Understand how market downturns affect retirement planning. Explore safe money alternatives to protect your future. Learn more at SafeMoney.com. If you are a retiree in your 70s or older, you may feel well positioned to weather potential financial shocks. But if you have yet to enter your golden years, you may face more difficulty maintaining your future retirement standard of living in the aftermath of financial shocks. That is the consensus of a 2018 report from the Center for Retirement Research (CRR) at Boston College. Unveiled back in February of 2018, the report is entitled “ Will the Financial Fragility of Retirees Increase ?” Its conclusion? Future retirees may not be able to rebound from financial jolts, such as those from unexpected medical expenses or the death of a spouse. That brings up an important question. Why would tomorrow’s retirees be at a greater disadvantage than those who have already retired? Current retirees may be benefitting from company-sponsored retirement plans in addition to their own retirement assets.  Not so for future retirees who face “inadequate savings and the limited income that safe withdrawal rates provide, reducing the cushion between their incomes and fixed expenses,” according to the report. Another alarm sounded in the report: “If households choose to hold a significant portion of their savings in equities to increase the income their savings provide, they will be more exposed to sharp market downturns that arrive early in retirement .” A Shifting Retirement Landscape The new reality of retiree vulnerability is a byproduct of the shift in retirement savings from defined-benefit pensions (employer sponsored) to defined-contribution plans. That shift includes 401(k) plans, of which individual accounts are funded by each employee. Another factor, according to the report, is that Social Security is expected to replace a smaller share of earnings. That forecast is expected because the full retirement age has increased to 67, for example, for those born between 1960 and 1967. Who is the most vulnerable? The report singles out Gen Xers and trailing boomers, those born between 1956 and 1964, as potentially in peril. According to the Center for Retirement Research, they are “the mo