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I Am About To Retire, Should I Withdraw All My Money from the Markets Now?

running2As a financial planner, I meet with several clients at different stage of life and with different investor profile. Some of them come to see me to borrow money and invest massively in index funds. Some others are panicking and think that the world will collapse. A lot of clients are asking me the following question:

“I’m about to retire, should I withdraw my money from the markets now?”

If you have asked your financial planner, he already told you that you should definitely not withdraw your money from the market right now. However, you probably have a small doubt that he is thinking about his commission being affected by withdrawals than your own good. Well if it’s the case, you should be better of getting rid of your financial planner now and start looking for another one.

However, I can tell you that he is right (why leaving your financial planner then? Because you don’t trust him!). The very first reason why you should deal with a financial advisor is trust. Then, you look which kind of answers (and explanations) he gives you to your financial questions.

Even if you are about to retire, you won’t be withdrawing all your money the first year.

People have the false belief that they should revise their investment strategy upon retirement. That they should get most of their money into fixed income and other secure investment product. The truth is that if you do that at the age of 55, 60 or even 65, chances are that you will survive your capital (unless you are awfully rich or awfully cheap!). Don’t you want to live the life you always dreamt about? This is why you need a good portion of your money invested in the stock market.

When we are looking at current CD (certificate of deposit) rate, we are barely making 3 or 4%. After the evil inflation [1] got its dirty hands over your yield, you are left with almost nothing. The stock market always gave about 9% over long term (10 year +). Therefore, even if you live through fluctuations, you are still better off with stocks or aggressive mutual funds than with CD’s and bonds.

Let say that you have 1M$ at retirement. If you plan on withdrawing $35,000 every year and your investment drop by 10% the same year, you will still get 868K at the end of the year ((1M$ – 35K) times 90%). Then, if your investment portfolio increases the next year by 10%, you will end the year with 916K. However, if you withdraw your money from the stock market after the first year and you go into a 3.5% CD, your investment will worth 862K after the second year. That’s 50K, or 18 months of retirement gone because you leave the stock market at a wrong time!

The key here is not to try to time the market, but to not cash in your money from the market when you are in a down slump. Wait until it goes back up and then, you will be in a better position to get more secured.

image source: tornatore [2]

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5 Comments To "I Am About To Retire, Should I Withdraw All My Money from the Markets Now?"

#1 Comment By IS On August 21, 2009 @ 11:30 am

Great to have you back TFB:)

So a question, would you then be timing your withdrawls (i.e. depending on the market returns?).

I would have thought that a gradual approach independant of returns would be better because it would be easier to follow and be disciplined on.

#2 Comment By Silicon Prairie On August 21, 2009 @ 2:20 pm

I agree that a gradual shift (starting a few years before you need to be more conservative) sounds ideal – but of course if there’s a big gain and you suddenly have enough to live off of fixed income there’s nothing wrong with doing a bit of market timing and getting out before you lose anything. If you don’t have a plan that makes you comfortable with a 25% drop in your portfolio, it’s probably too risky to stay in the market even now.

In any case you’re likely to end up caught between having inconsistent/negative returns and not having enough to last the rest of your life. There doesn’t seem to be a good solution to this, but unfortunately it’s rarely discussed at all (it’s true that it’s not a problem until you actually get people to invest but it does need to be resolved eventually).

Personally I plan to avoid this problem by working hard to get continuous income that’s not based on how much work I keep doing, recognizing the full price I pay when I spend money on things I don’t need (which leads to avoiding a lot of spending), and then giving myself more free time and security using a combination of work (there’s always something that’s interesting and worth money) to make up for inconsistent investment returns, controlled spending to avoid blowing it all in one year, and investment growth over time (hopefully a long time) to give me more options. I don’t mind what I’m doing now at all but I’m aiming to do this as soon as I can, which means I can plan to be in the market for a long time and I can provide extra income to balance things out. Of course this is very unusual and doesn’t completely resolve the problem in the end so it doesn’t really help anyone but me 🙂

#3 Comment By The Financial Blogger On August 21, 2009 @ 6:12 pm


I think it is actually best to have a part of you portfolio in fixed income and money market in order to withdraw from this part and leave your equities in the market.

However, each year, you will have to transfer a portion of your equities into fixed income and money market funds in order to keep the same asset allocation. The best thing to do is to have a few years of income into fixed income and transfer (sell) more % of equities when the market is high (in 2-3 years for example).

I’m glad to be back too!

#4 Pingback By Intelligent Speculator | Financial Ramblings On August 22, 2009 @ 10:55 am

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#5 Comment By bsona On June 10, 2010 @ 9:30 pm

If you have your primary residence paid off and you put all your retirement funds (say $2M in Certificate of Deposit paying 4.5% interest = $90,000) you will enjoy your retirement days plus the peace of mind that your money is not at any risk. I transferred all my 401K into a 5yr CD paying 4.5% in early 2008 so i know this rate is feasible. Just make sure the bank is FDIC insured.

The S&P has not had any positive return in 10yrs and the DOW has barely moved either in 10yrs. Going forward the best the market can do is 9% annually so why take all the risk in the world just for 9% when you can make 4.5% risk free. You can get 5yr CD now at 3% so by next yr or so, it will get to 4.5%.

This is what i practice and it works perfectly.

The stock market is the biggest lie ever told to the American people. and i realized at early age that it was a gimmick. The first rule to get to retirement is savings !