Should Tariffs and Market Volatility Change Your Retirement Timeline?
"Jim" (66) and "Karen" (64) both retired in the last six months.
Jim has an IRA with $900,000, and Karen has a Roth IRA with $300,000. They inherited a brokerage account with $600,000 and a cost basis of $500,000. They have $100,000 in an emergency cash fund.
Jim is receiving his Social Security benefits of $2,600 per month. He also has a pension of $1,800 per month.
Karen is planning to start receiving her Social Security benefits at 67, for $1,900 per month.
Their total net worth is $2.7 million.
And now, just months into their retirement, Jim and Karen are wondering if they retired too soon. Do they need to jump back into the workforce to protect their financial plan against current market volatility?
On today's show, we analyze "Jim and Karen's" situation in the context of our broader economic moment and comprehensive planning principles. I hope this case study will help anyone who's close to retirement gain some perspective about whether market movements should affect your short-term or long-term financial goals.
1. Staying liquid.
When analyzing someone's "net worth," a seven-figure sum can sometimes look more beneficial on paper than in practice. If you trip and fall tomorrow and need cash to pay for an expensive surgery, or if inflation drives up the cost of your monthly groceries, it's going to take time to turn real estate or other hard assets into cash.
Jim and Karen's portfolio has a nice mix of diversified assets, which gives them plenty of options to cover their needs and build wealth in a wide range of scenarios. While the markets are down, Jim and Karen would be able to tap into their money market and short-term fixed income accounts. They also might be able to strategically rebalance their brokerage account, potentially reducing their tax liability for 2025 while also "buying low" on securities that are likely to rebound.
In addition to fully owning their home, Jim and Karen also report that they are debt-free, another huge plus. While paying off a fixed-rate mortgage can be a reasonable line item on a typical retirement budget, it's generally best to get a handle on your credit card debt and vehicle loans sooner rather than later. In this case, that home equity line of credit is another tool that Jim and Karen can utilize in a pinch, or if their retirement goals change.
2. Crunching the numbers.
Jim and Karen want to spend about $100,000 per year to maintain their preferred lifestyle.
On top of that, once Karen joins Jim on Medicare later this year, they will be paying about $6,000 per year for health insurance.
They've also identified two larger spending goals: a $100,000 home remodel in 2026, and $20,000 per year for the next ten years for travelling expenses.
What's great about Jim and Karen's plan is that they've clearly thought about the importance of balancing their short-term needs with their long-term goals. One area where we would probably help Jim and Karen make a more precise projection is their health care spending. Seniors tend to spend more on their health care in the later years of retirement. We want Jim and Karen to have more resources available to them at that stage than just their bucket of emergency cash.
With this complete picture of Jim and Karen's assets and spending goals, my team was able to analyze their plan with a mixture of software tools and our professional human expertise. The result: Jim and Karen have an 84% probability of success, a very high figure for these kinds of modeling scenarios. In our opinion, they do not need to start working again, unless of course they would enjoy working in some capacity to stay active.
3. Answering the 16% question.
It's not surprising, or even uncommon, for a couple to receive the kind of good news we were able to give Jim and Karen and still be more focused on the negative probability than the positive.
In this case, what does that 16% figure really represent? Is Jim and Karen's probability of success going to go down if market volatility continues?
To put these questions in a proper context, you have to be aware of the assumptions and biases that come into play when folks are nervous about their money.
The markets are indeed down right now -- as they were after 9/11, the 2008-09 housing crisis, and COVID -- but they are highly unlikely to stay down forever, let alone go to zero.
And if one of the worst-case scenarios that our planning models account for were to play out, we wouldn't just leave Jim and Karen's plan alone. We would help them make adjustments -- to their investments and savings as well as their spending -- so that they could continue to thrive in retirement.
As we discussed on a previous episode, tariffs and market volatility are nothing new. But living through these kinds of challenges as a retiree may indeed be a new experience for you. At Keen Wealth, we’ve helped folks navigate these kinds of complicated situations before, and we’re ready to help you optimize your financial planning right now.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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