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Will Your Retirement Plan Survive a 2007 Downturn

We are almost at the 10-year anniversary of the start of the Great Recession that began with the subprime mortgage crisis and culminated on September 15, 2008  with the collapse of the Lehman Brothers investment bank. I’m dredging up this “ancient” history for two reasons: first, to remind you that markets go up and markets go down and some people are starting to forget the Great Recession. Markets, like trees, don’t grow to the sky. And, second and more importantly, if you are within three years of retirement, could you still retire if we have another recession like that one?

To revisit the impact of the 2007-2009 bear market correction, the S&P 500 lost 50% of its value during those 17 months (October 9, 2007 to February 9, 2009). How would your current portfolio do if we saw a correction like that starting tomorrow?

If the answer is “yes,” you could still retire, then good for you. However, if the answer is “no” you could not retire as I suspect  far too many people would answer, then you have some work to do. Here are some suggestions:

  1. Know with certainty how much you need to live on in retirement;
  2. Have at least three years of living expenses in cash;
  3. Have a distribution plan for your retirement — know from which accounts will you draw income and at what ages;
  4. Know your Social Security claiming strategy;
  5. Have answers to the three biggest questions in retirement: where will you live, what will you do and who will you do it with.

If you have addressed these five items, then you’re ready. If you don’t have good answers to these items, get going to create your retirement plan and start now.