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Why a Falling Stock Market Won’t Delay Boomer Retirements

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The baby boomers are getting ready to retire, and they won’t let a stock market selloff stop them.

U.S. stocks recently concluded the worst January since 2009 and have continued falling into February. The Standard & Poor’s 500 index is now down 10% from its peak last year. You might expect aging boomers to postpone their retirements anxiously after watching stocks tumble. Instead, nearly 403,000 American workers and their spouses were awarded their first Social Security checks in January, the highest monthly total in three years. According to Social Security data, 3.2 million workers and spouses qualified for retirement benefits in the last 12 months, up 3.3% from the previous year.

That’s not a surprise to retirement researchers. People retire for many reasons, including health, job security, and hitting those magic birthdays when Social Security or pension benefits start. But there’s no evidence that short-term fluctuations in the stock market influence when workers call it quits.

A single-year rise or drop in the S&P 500 has no statistically significant effect on retirement rates, according to Courtney Coile and Phillip B. Levine, economics professors at Wellesley College. Only huge, long-term moves in the stock market affect retirement timing, the researchers found, and only for well-educated Americans who are most likely to own stocks. Over a 10-year period, an extra 77% rise in the S&P 500 index will tend to increase the retirement rate for college-educated 62- to 69-year-olds by 1.5 percentage points, which is 12% more people retiring compared with the average. Coile and Levine find no evidence that big, 10-year stock market moves affect younger workers or those with less education and fewer stocks.

All this isn’t to say that falling markets aren’t bothering Americans who are near retirement age. Dropping stock prices make the difficult switch from earning money to spending your savings even harder, says Mark Beaver, a financial planner at the firm Keeler & Nadler in Dublin, Ohio. “Even if they’re in exceptional shape, it’s always stressful,” he says. “That’s a big emotional and financial decision.”

Financial advisors have a variety of strategies to ease these worries. They can run projections based on the market’s long-term record showing that account balances almost always recover from big selloffs. They also can make sure that investors approaching retirement have an extra cushion of cash, money that can be spent early in retirement without the need to sell stocks when they’re at a low point.

Andrew Houte, a financial planner at Next Level Planning & Wealth Management in Brookfield, Wisconsin, recommends that retirees have as much as three to five years of cash. “It does a lot for the psyche,” he says. “You do not want the market hijacking your emotional state.”

There’s reason to suspect boomers today are more patient and unflappable investors than previous generations were. The past 15 years, including the financial crisis and the 2000-’02 tech bust, have delivered some rough lessons on how to ride out volatility. “We’ve had these big boom-bust cycles,” Wellesley College’s Coile says. “Investors may have gotten used to the idea that you do see big fluctuations — in both directions.”

— Check out Fixing Social Security: Be Careful What You Wish For on ThinkAdvisor.


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