If you’re in your 40s or 50s and contributing regularly to a retirement account, it can be unnerving to watch that account value go down even as you’re putting more money into it. During the 2008 market crash, I sometimes felt like I was setting money on fire by continuing to invest as I always did, while my 401(k) value kept dropping.
But if you can work another 5, 10 or more years while still investing in a retirement fund, you may have time for those shares you’re buying (at a lower price) to bounce back before you need the money. You might even come out ahead, since some of those shares you bought were relatively cheap.
The key here, of course, is timing. And not losing your job in a recession.
However, if you’re no longer earning a regular paycheck and no longer buying stocks each pay period for your future retirement, but instead are withdrawing money to live on for your current retirement . . . a lower value just means less available money.
When I retired last summer, I knew I needed to be psychologically ready for the stock market to decline again at some point. Markets simply do not go up all the time. However, I wasn’t expecting the S&P 500 to drop more than 15% to kick off my first full calendar year of retirement (it’s now back to around minus 9%).
But the raw decline isn’t the problem. The market is about the same (as of Friday) as when I retired last summer, since it had gone up a lot in the months after I stopped working. If this was a normal market dip, I’d be fine.
But it’s not.
A popular measure of US stock volatility nicknamed the “fear index”, the CBOE Voalitity Index (VIX), is already reaching highs generally only seen in major crises.
Outside of the 2008-09 crash and the 2020 global pandemic shutdown, this year is the only time the VIX has topped 50 more than once since at least 1990 (the earliest I could find data). And it’s only April.
In fact, four of the five highest non-crash/non-global-shutdown index peaks happened last week. VIX “only” hit 46.12 yesterday – among the top 20 daily non-crisis peaks in decades.
Like a lot of things going on these days, this isn’t normal.
“What we have seen in the past week in terms of financial markets movements represents an unprecedented level of volatility, equaled by Covid and the Great Financial Crisis of ’08-’09,” according to the financial website Seeking Alpha.
What’s maddening about this market drop is that it’s happening for no discernible reason except . . . tariffs. And there’s no economically sound reason for the US to launch a massive trade war with our allies, something that will raise prices for everyone. If the goal is to protect certain industries from unfair competition, tariffs need to be strategic and targeted. These certainly aren’t.
The 2008 crash was bad enough, when the economy tanked due to recklessness and greed in the private sector combined with inadequate federal regulations. At least when that happened, though, politicians on both sides of the aisle acted as though it was a bad thing.
This time it’s being done on purpose.
Now we’ve got an administration which believes the decline in our retirement savings - and conceivably a cut to Social Security and Medicare benefits, which are insurance benefits many of us paid premiums toward for decades – are all acceptable collateral damage for . . . I’m not sure what exactly.
As if that’s not bad enough, add significant cuts to the federal workforce, which are having a ripple effect throughout the economy. Unemployment will obviously rise, and even many government workers who still have jobs will start pulling back on discretionary spending, worried about their jobs. So will people at companies that depend on government contracts. Same for people whose jobs depend on international trade – the US Chamber of Commerce estimates that’s 41 million people, or almost one-third of all private-sector jobs.
The US economy runs on consumer spending, and consumer confidence is dropping.
The benefits of all this to the average citizen either in the short or long term are, um, somewhat unclear. However, the suffering – of those losing their jobs, services lost, countless worthwhile programs from cancer research at home to saving lives around the world being decimated, people frightened about their livelihoods and safety – is quite clear.
Of course I know there are many worse things going on right now than a drop in the value of my retirement fund. There’s terror felt by vulnerable immigrants, trans & gay people, and other minorities; the erosion of civil liberties; and people being imprisoned without due process. However, since this particular space is about my retirement and isn’t a political blog, I’m focused here on how current events affect me as a retiree. And they certainly have, at least psychologically.
I’m enough of a pessimist that I’d already pulled a significant portion of my retirement savings out of the stock market – not only for political reasons, but because the markets seemed rather high. That’s good protection for a conventional market downturn. But is that what we’re at the beginning of here? I’m not sure.
My retirement calculations included my promised Social Security payments. How safe are those? I don’t know.
Can I even count on federal bank insurance for my CD accounts in the coming years, given that the same teams which are slashing other government services are coming after the FDIC? Again, I’m not sure.
How long might all this economic upheaval last? How will this turn out? I certainly don’t know – and won’t until it all plays out.
Until then, I’ll try to rein in my financial news doom scrolling along with limiting my intake of political news. I’m not trying to ignore what’s happening, but I’d like to find a balance between being well informed (important!) and driving myself crazy (not good).
If you’re in the U.S., I hope you can do the same.
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