Retiring this year? There is something worth thinking about before you circle that date on the calendar. Consider a scenario where the Iran conflict or other geopolitical events plunge your portfolio into a bear market for the next few years…. Just as you’ve stopped earning income, you could be withdrawing from your investment portfolio at depressed prices. Selling assets at a market low to cover living expenses means your hard-earned dollars would not participate in a market recovery. So how do you know when the timing is right? According to new research published last week on Kitces.com, three out of four retirement outcomes are driven not by how well you saved, but by the market environment you retire into. Think of your retirement date not just as a lifestyle choice but as a risk variable to evaluate.
Why the First Few Years Are the Most Dangerous
The years just before and after retirement are when your portfolio is at its largest, and therefore the most exposed. A significant market decline early in retirement does damage that may be difficult to undo, because you are withdrawing funds at the worst possible time. The research found that simply having flexibility around your retirement date (even a two-year window) could produce a difference of roughly two-thirds in final portfolio value, depending on when within that window you actually retire. Timing, in other words, is one of the most consequential financial decisions you will make. And with stock market valuations currently at historically elevated levels, the risk of entering a weak-return environment warrants factoring into the plan.
Modeling Your Outcomes
It might be time to stress-test your retirement date. Rather than planning only against an average expected return, run your retirement projections through a bear market in years one through five, a prolonged period of elevated inflation in early retirement, or a combination of both.
Seeing these scenarios side by side often changes the conversation. The question is no longer “can I retire?” but “how resilient is my plan if conditions are unfavorable early on?”
Review Your Options
The goal here is not to time the market or delay retirement indefinitely, waiting for the perfect conditions. It is about building a plan that can withstand an unfavorable start.
One of the most effective buffers is maintaining adequate cash reserves or short-term investments in the early years of retirement, enough to cover living expenses without being forced to sell long-term investments at a loss during a downturn. If the market declines in year two of your retirement, you want options. Having a reserve means you are not a forced seller.
Beyond reserves, transitioning gradually rather than stopping work entirely is worth considering. Shifting to part-time work, consulting, or a lower-stress role (even for two or three years) reduces early portfolio withdrawals and buys the portfolio time. Modest earned income in those early years could make a meaningful difference.
Flexibility in spending during the first few years is another layer of protection. Being thoughtful about large discretionary expenses early in retirement, such as travel, renovations, and large purchases, can preserve significant long-term value.
None of these steps requires predicting what markets will do; rather, they help improve the outcome of your long-term plan if you experience unfavorable conditions early in retirement.
Please reach out to your Wealth Manager with questions about stress-testing your retirement plan.
