Is It A Bad Time To Retire?

By: Max Valavanis, CFP®

Sometimes retiring can be scary. The concept of an “eternal Saturday” may be exciting for one retiree and just as horrifying for another. As a Certified Financial Planner, many of my clients battle this decision: when is the time right. Unfortunately, your mindset isn’t the only variable in determining if the time is right. When approaching retirement age, you could’ve dotted your I’s and crossed your T’s, but the economy could rear its ugly head and squash your plans. So, I ask again, “Is it a bad time to retire?”

When taking a peek at the state of our economy, questions and worries may arise. In April, the U.S. Bureau of Labor Statistics announced an inflation rate of 4.9%. While this number may be a welcome sign to those who remember the 9.1% inflation peak in 2022, the figure still leaves much to be desired. As the Federal Reserve maintains its target of 2% inflation, they may continue rate hikes. Not only do these hikes – typically – cause inverse reactions to the stock market, but they drastically increase the cost of borrowing. Retirees thinking about downsizing in retirement may want to reconsider. Currently, the inflation rate is 3.1% and mortgage rates are sitting around 7.9%, a far cry from the rates seen in years past. Adding insult to injury, many other factors, such as the banking crisis, further weaken the economy.

You may be thinking, so what? Or how does this affect me? For many retirees – or soon-to-be retirees— their most vital assets are their retirement accounts. The IRAs, ROTHs, 401(k)s, etc., can all be affected by these simple factors, and retiring at the wrong time can exacerbate their negative impacts. According to a 2020 Vanguard study, the timing of retiring during a weak economy can be monumental to living a comfortable life. In this study, two people are retiring with the same amount of money, investing in the same investments, and withdrawing the same dollar amount yearly. The only difference is one of the retirees retired in 1973 and the other in 1974. Over 35 years, and with 34 years overlapping between the two, the 1973 retiree ran out of money in year 23, and the 1974 retiree still had 25% of their preretirement amount at year 35. This study further highlights the impact the strength of an economy and timing can have on your retirement.

Fortunately, proper planning can help mitigate these variables. If done right, you do not have to fall victim to poor timing. While it is always best to have your retirement financially planned years before making the decision, planning late is better than never. If you or anyone you know is worried about how this economy may influence your retirement, call (321) 956-7072 for a free consultation.  We focus on assisting seniors in achieving their “eternal Saturday” and living a retirement where they do not need to worry about their finances.

Max Valavanis, CFP® is a co-owner of ValaVanis Financial in downtown Melbourne and in Rockledge. Max specializes in lifetime income planning for Retirees while protecting principal.  Max can be reached at 321-956-7072.