How you feel can potentially derail your retirement.
Money is always the center of attention when talking about retirement, and that makes sense. What is more important than money is our behavior with money, and our psychology around money, especially on the long road to retirement. The stock market and whether it is up or down is emotional, and when it is not doing well it can be scary and mess with our sense of safety. Having confidence around the stock market as a tool for building wealth and funding retirement can stop that fear and uncertainty from causing our behavior to do something that is not in our best interest. This can be the most important when the stock market has had a few years of above average returns, it can feel like it has become the norm and might even feel like it is going to continue on forever. History tells us that isn't how it works, but when the drop comes it can make us feel vulnerable.
We are a third of the way through 2026 and the Stock Market has been volatile this year, and all signs point that this up and down rollercoaster might just be getting started. The last time the market was “volatile” like this was in April of 2025, and the S&P 500 dropped -6% during just a few sessions, the worst month of performance since the Bear Market of 2022. Our financial planner called to see if we needed to meet, to make sure we didn't do anything silly and sell. He explained that he had clients that had pulled their money in 2022 at the bottom of the market due to fear and had not gotten back into the market since then. We were fine and passed on the check-in. I appreciated that he checked in, he just wanted to make sure we really had the risk tolerance we reported to him and would hold and breathe through the market volatility. While any time the market drops like that it feels a little daunting, we still had no problem riding through the ups and downs of the market because we understood the big picture. As long as we held onto those shares, history has shown that the market would recover. No one could tell us when, but the big picture was retirement down the road, so keeping all the “shares” in the market, was our best bet. Once you sell the loss is” realized” as long as we held those shares, the loss was “unrealized,” so we chose to let it ride. The market recovered quickly and I probably would not even remember it if it weren’t for the conversation with our planner.
But why would people have pulled out of the market during 2022 if it just recovers quickly? The truth is sometimes it takes a while and 2022 is just the most recent where it was a bigger drop for a longer time. And that is where psychology becomes so crucial, because a little blip can feel like doomsday to some, and just a temporary setback to someone else. The longer it takes to recover, the more uncertain that recovery can feel. Between January and October 2022, the S&P 500 dropped -25.4% then started to recover ending the year at a -19.44% return. The market continued to grow through early 2023, hitting an official bull market, defined by a 20% gain, by summer and reaching market record highs by the end of the year. While it did recover within a year, 2022 was the worst market performance in a single year since the 2008 financial crisis, and for some their reaction was to get out of the market. Given the growth of the market since then, this can be a more devastating loss to retirement savings by being currently out of the market than any losses sustained during the 2022 crash. Tracking the S&P 500 is one way analysts study market performance over time.
The S&P 500 index, which has been in existence since March 4, 1957, tracks the performance of the 500 largest publicly traded companies in the United States, accounting for 80% of the total U.S. Market. Now in May of 2026, the market has seemed to have recovered, yet it was on a big downturn in March of this year when we did hit a 10% drop, making it officially "volatile". Just in the last few days the S&P 500 and the NASDAQ have hit all-time highs, so does that mean this is over and we are back to business as usual? That is the thing, business as usual for the stock market is actually that it does go up and down. While compounding returns over time is the best way to fund retirement, it is not a straight line. The market is sometimes up and sometimes down, but the overall annualized returns have been positive in the last 100 years. The pattern is unpredictable, which is called the sequence of returns. When it is relative to your retirement date, then this is referred to as the sequence of return risk. This refers to that when you retire matters, but again it is not predictable, so whether the sequence of returns will be favorable or not when we each retire is something we cannot know ahead of time. So, what do we do when the market goes up and down on our road to retirement? The answer is simple - nothing.
If retirement is far into the future, the good news is that the average annualized rate of returns since tracking the 500 largest companies in the U.S. stock market, known as the S&P 500 index, has been over 10%. There has not been a 20-year period where there has been an overall loss in the market, however, there has been a 10-year period of 2000-2009, where the market sustained just under a -1% annual rate of return or almost -10% total for the 10-year period. Adjust that for inflation and the losses sustained were even greater. If retiring right around the turn of the Millenia, having to rely on your portfolio as the market dropped double digits multiple years in a row, this would be a troublesome sequence of returns, putting retirees at a risk of running out of money. But those that had 10, 15 or more years before retirement were just fine as long as they did not panic and pull out. They were especially good if they continued to put money into their retirement accounts and invested in a balanced portfolio during the down years essentially buying shares "on sale."
What about those of us with less than 10 years or even less than 5 years before retirement? The strategy is the same, do nothing. Meaning do not pull your money out and continue to invest through tax advantaged accounts until retirement. But will that be enough? The good news is that William Bengen studied what would happen to a portfolio when a retiree does retire at the worst possible sequence of returns, just in case we end up being in that position. In his original study published on October 1994 in the Journal of Financial Planning, he determined that a retiree that retired in October of 1968 was the worst time to retire as far as market conditions and also due to the inflation during the next decade. This fictious retiree could withdraw 4.15% every year of the original balance and adjust for inflation by applying COLA each subsequent year and their money would last a 30-year retirement. The 4% rule was born! But remember that low of a withdrawal rate is only needed in the worst case.
In his latest book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More. William Bengen revises the rule to 4.7% in the worst case as long as you have a balanced portfolio, most people can actually safely withdrawal more, it is just difficult to predict ahead of time. His new study and book did even incorporate the "lost decade" of 2000-2009 and 4.7% still held true to a safe withdrawal rate. I recommend checking out his book to learn more about that. He also mentions other strategies that have gained traction since his first publication in addition to using a safe withdrawal rate. Meeting with a financial planner to do a "health check" on your asset allocation to make sure you are not taking any unnecessary risks with your portfolio can be a positive step too. You can also discuss with them if in the future you want to use a guardrail approach to be flexible with withdrawals, or to use a bucket system for early, mid, and late retirement, or even a combination of all the strategies for a hybrid approach, it is really up to you.
Bottom line, trust your plan. History tells us keeping your money invested over the long haul is still your best bet to financial independence in retirement. If you have a long time ahead, stay the course. If you don't, still stay the course and do your research on what strategies you want to use in retirement to preserve your nest egg and ride out the storms so you can be prepared. William Bengen's book is a good start, meeting with a financial planner, or simply starting to educate yourself on some of the strategies I mentioned to determine what could be best for you, are all ways to make sure you are confident and make the right decisions even when things feel unsteady. There is a lot to learn, arming yourself with understanding all the different ways you could retire safely will help your confidence and make you better prepared for that amazing adventure ahead of you!
Disclaimer: I am not a financial advisor, just a future retiree and retirement planning enthusiast. I recommend you seek your own professional advice and do your own research. I love sharing my husband and my journey with you and am very happy you are here! It is through conversations and learning other people's journeys that got me motivated to get on the active path to planning for retirement. My greatest desire is that the stories I share help inspire you to do the same. Until next time, be well and dream big!
