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How to Manage Your Retirement Paycheck During a Market Decline, Episode #53 Thumbnail

How to Manage Your Retirement Paycheck During a Market Decline, Episode #53

As much as we all like to see the stock market go up, periodic pullbacks and bear markets are inevitable. And while these periods don’t feel great for any type of investor, they can be especially stressful if you’re retired and are withdrawing from your investments to fund your lifestyle (what we call your “retirement paycheck”). With that in mind, this episode is dedicated to managing your retirement paycheck during such market declines. There are certain things to do and certain things to avoid doing, so we explain how to approach these periods and not just survive them, but also make the most of them. 

Outline of this episode

  • Pause and take a deep breath [2:04]
  • Check in and review your retirement projections [5:36]
  • Cash management and how to continue funding your retirement paycheck [10:01]
  • Making lemonade out of lemons [14:08]
  • Having a game plan for the future [19:52]
  • The recap [24:57]

When lifeboat drills call for real-life actions

We have recently experienced a temporary period of the stock market declining. Having a plan for managing your retirement paycheck during these periods won't just be helpful now, but also in during the multiple times this will happen in the future. In several ways, this episode can be viewed as version 2.0 to episode #40, which we recorded at the end of 2021 that highlighted the importance of lifeboat drills and how to prepare yourself for inevitable stock market declines. Fast forward nine months later and here we are experiencing one of those negative periods, for both the stock and bond markets. The reason we look at this as version 2.0 of episode #40 is to add focus on what happens once that market environment you've been preparing for in your lifeboat drills actually materializes.

We'll break this episode down into five different parts. Number one is to step back, take a deep breath and maintain perspective. Number two is to check in and review your retirement projections to see if any changes may be warranted and what impact this temporary decline has had. Number three is looking at the logistics of cash management and how to continue funding your monthly retirement paycheck. Number four is about capitalizing and taking advantage of the opportunities that market environments like these present for tactical planning. And lastly, number five is projecting out and planning for the future and having a game plan for what you may or may not do and to prepare both mentally and financially for the unknown future.  

Take a deep breath…figuratively and literally if you need to

The first step is to pause and take a deep breath. What we're referring to with a deep breath is more of a concept. It's about quieting the negative feelings, emotions, and thoughts that naturally materialize when you see your investment account balances falling, especially in retirement. When the stock and bond markets are falling, it's human nature for fight or flight to kick in because there's a perceived threat to your wellbeing. 

This concern may vary over time and with experience. You may have "seen this story before" and know the market will recover, eventually. Or you may be newer to investing and the fear and negative emotions might be causing you a significant amount of daily stress. Wherever you are with your investment temperament, we can all agree that it's easier to experience these periods when you're saving to your investment accounts, as opposed to withdrawing from them to fund your living expenses. In other words, the challenges of navigating periods of decline are amplified in retirement. But that doesn't mean you have to give in and let this negatively impact you. By acknowledging and accepting the reality of these dynamics, you'll already be in a better position to handle them when they do surface.

Making the best out of a bad situation

After you take care of and have a plan for managing your retirement paycheck and raising the cash you need to meet your living expenses, you can move on to some of the proactive strategies that you can implement (turning lemons into lemonade). During these periods of market decline, you can take it a step beyond just trying to "get by" and instead look at how to capitalize. Three strategies you can potentially implement here are rebalancing your investments, making proactive Roth IRA conversions, and tax-loss harvesting, all of which will help to increase the amount of money you'll keep in your pocket over time.

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