For decades, the goal is often relatively simple: earn, save, invest and build wealth over time. Stopping work changes that dynamic.
Instead of contributing to pensions and investments, you begin relying on them to help fund your lifestyle.
That’s one of the reasons market falls can feel particularly unsettling for people approaching retirement.
Why this concern is so common
Market declines are a normal part of investing. The Financial Conduct Authority is clear that investors should expect the value of investments to rise and fall over time.
The challenge is that retirement changes the relationship you have with those fluctuations. For decades you’ve been contributing to pensions and investments. Once you retire, you typically start relying on them to provide income.
That’s why a market fall shortly before or after retirement can feel particularly unsettling, even though volatility itself is nothing new.
Why the timing can matter
Imagine two people retire with identical pension pots and achieve exactly the same average investment return over retirement:
- One experiences strong returns in the early years and weaker returns later.
- The other experiences a market downturn shortly after retiring before markets eventually recover.
Even though their average return may be similar over time, the person who experiences poor returns at the beginning can end up with a very different outcome because withdrawals are being taken while investment values are temporarily depressed.
This is known as sequence risk – the risk of experiencing poor investment returns early in retirement while simultaneously drawing income from your portfolio.
It’s one of the reasons retirement planning involves much more than simply calculating how much money you’ve accumulated.
Does this mean I should delay retirement?
Not necessarily. One of the biggest mistakes we see is people assuming they need perfect market conditions before they can retire.
The reality is that nobody knows what markets will do next. Research from Vanguard consistently highlights the challenges of trying to predict market movements and the importance of maintaining a long-term investment perspective.
If retirement plans depended on markets never falling, very few people would ever feel comfortable retiring.
Instead, the focus is usually on building enough resilience into the plan to withstand periods of market volatility.
How retirement plans are designed to manage this risk
Good retirement planning does not assume markets rise every year.
In fact, most financial planning models deliberately include periods of weaker investment performance because market downturns are a normal part of investing.
There are several ways advisers may help manage this risk, including:
- Maintaining an appropriate cash reserve
- Diversifying investments across different asset classes
- Using sustainable withdrawal rates
- Reviewing income needs regularly
- Adjusting spending if circumstances change
- Stress-testing plans against different market scenarios
The objective is not to eliminate risk completely. It’s to create a plan that remains resilient even when markets don’t behave perfectly.
Why flexibility can be valuable
One thing that often gets overlooked is that retirement does not always need to be an all-or-nothing decision.
Some people gradually reduce working hours before stopping completely. Others continue consulting, freelancing, or working part-time for a period.
That flexibility can provide additional options if markets are particularly volatile around retirement.
Equally, many retirees naturally spend less in some years and more in others. Having flexibility around discretionary spending can make a significant difference during periods of market uncertainty.
What should you do if markets fall after you retire?
The answer will depend on your personal circumstances, but for most people, the worst response is often a rushed one.
Making major investment decisions during periods of uncertainty can lock in losses that may otherwise have recovered over time.
Historically, markets have experienced numerous periods of volatility and decline, yet long-term investors who remained invested have generally been rewarded for their patience.
That doesn’t mean doing nothing is always the right answer. It does mean decisions should normally be made within the context of a wider financial plan rather than in response to short-term market movements alone.
Porta’s Take
One thing we often notice is that people approaching retirement sometimes feel they need certainty before they can move forward. But investing has never offered certainty.
Whether you retire this year, next year, or five years from now, there will always be headlines predicting market falls, economic slowdowns, political uncertainty, or reasons to wait.
The goal is not to find the perfect moment to retire. The goal is to build a financial plan that can cope with imperfect moments when they inevitably arrive.
In our experience, people often feel far more confident once they understand how their retirement plans would respond to different market scenarios. The question shifts from ‘What if markets fall?’ to ‘Would my financial plan still work if they did?
That’s usually a much more useful conversation.
If you’d like to explore how resilient your retirement plans are to different market conditions, we’re always happy to talk it through.
Important information
This article provides general information only and does not constitute personal financial advice. The information is based on our understanding of current regulations, which may change in future. Decisions about your finances should always be made based on your individual circumstances. If you’re unsure about the suitability of any course of action, you should seek regulated financial advice. The Financial Conduct Authority does not regulate tax planning, estate planning, trusts or wills. The value of your investments can go down as well as up, so you could get back less than you invested.
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