Most people don't seem to understand that you don't pull all your retirement out at once, so the market going up or down doesn't really affect that
Choose the "all" to see the entire chart.
https://tradingeconomics.com/japan/stock-market
It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.
Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital).
If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.
35 years later you would have an annual return (inflation adjusted) of 6% (6.5 times as much as you put in).
And this is somebody who invested in the absolute peak of the market in 1929, and then saw the worst crash in history, followed by the worst war in history.
Markets can grind lower and lower for decades, each new low triggering bargain hunters to buy, only to drop more.
1) Shares were massively overvalued compared to their yields. E.g. if P/E ratios were 50:1 then I wouldn't buy the market
2) There's a fundamental issue in the economy. Plague, war, asteroid, climate change. Whatever the issue, you probably have bigger things to worry about than your retirement fund, and you have no better bets to place
The stock market is just made up of businesses. Businesses make money. Owning part of a business gives you a return. There's no magic to it, no massive extrapolation based solely on past performance. If you think there's a decent chance businesses aren't making money, then you ought to become a prepper.
I personally buy an all-world tracker, the Nikkei is an outlier. There could be issues that affect the global economy long term, but if that were the case, I'd have other things to worry about in addition to my investments.
Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes...
Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal.
However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal.
2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000.
The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000.
Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around...
The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm...
The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh...
Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left.
Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke.
This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections.
[0] - https://www.macrotrends.net/2526/sp-500-historical-annual-re...
- This person likely could have drawn social security income, given that it's 2000 and SSI is not bankrupt.
- Ideally you have the funds you need to retire in the principal alone, and are only relying on very modest growth rate to fight inflation once you're actually withdrawing from it.
- You shouldn't be withdrawing retirement funds from an S&P 500 index fund investment. The funds should have been in a retirement income-focused fund or low-risk bonds, which would have helped maintain principal even in down years.
- Ideally your house is paid off, so you're not paying down a mortgage, and have significant equity in your home to draw from as a last resort.
I think a more realistic scenario is someone in their mid-50s who thought the numbers were working out in their favor to retire early, only for the market to crash, and now that is no longer looking like an option.
Also, while I agree with you position, most people unfortunately are not in that kind of situation (of course, they typically don't have the $1M I used in my example either).
If you can’t live off the dividends, you don’t have enough to retire.
You'd actually want a better mix of income generating assets than straight stocks to make sure you have income and are keeping up with inflation.
And a million is more than enough to retire. (Perhaps not enough for you or me, but that's a lifestyle choice.)
So...
There is no such thing as having all your costs due immediately with equal urgency.
SS isn't much I'll grant. However it is enough to provide the basics.
Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down
"The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow...
What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k.
> It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.
Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle.
Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.
My employer changed the 401k match (in company stock) to a single purchase in January. Of course you can sell immediately, but it has the effect of boosting the shares when you do it for over 100k employees.
I've also read that upon receiving the money, brokerages don't always show it to the end user right away, using it on their end for a few days (and at scale, that matters).
Fair point regarding the 401k match - but are they issuing new stock to complete the match? I haven't looked at how a match with company stock is funded before, but intuitively I'd think they'd issue new stock, diluting existing stock a tiny bit, but keeping the same overall company valuation.
As originally presented I saw the issue with your wife's 401k and padding the stock price as part of the same issue.