On Retirement

Retiring in a Volatile Market

Judith Ward, CFP®, Senior Financial Planner
Key Insights
  • Investors nearing retirement—or newly retired—may be concerned about the timing of a market downturn and the effect it will have on their nest egg.
  • We analyzed two time periods with market drops at the onset of retirement to gain insight on portfolio sustainability through an individual’s projected retirement horizon.
  • We found that an initial 4% withdrawal amount, increased to maintain purchasing power, produced good results in each scenario.

After almost 10 years of market gains, investors saw a sharp drop in the market—and their account balances—at the end of 2018. While the ups and downs of the market are natural, individuals near retirement may wonder how an increase in market volatility may impact their ability to retire.

When it comes to spending down one’s nest egg in retirement, the sequence of returns (the order markets are rising and falling) is very important. Market declines within the first five years of drawing down retirement assets can significantly impact the chance of the portfolio lasting, especially when planning for a retirement horizon that could span decades.

As a result, retirees are hit with a double whammy: Their portfolio value declines, and withdrawing money to spend in retirement only serves to realize those portfolio losses.

To better understand the impact of market volatility on retirement security, we examined historical bear markets to see the effect they have on retirees when markets drop early in the retirement horizon.

We analyzed retirees from two different time periods:

  • Someone who retired January 1, 1973, the most recent 30-year period that started with a bear market.
  • Someone who retired January 1, 2000, who has already lived through two recent bear markets and is more than halfway into their retirement years.

The 1973 Retiree Scenario

In 1973, there was the onset of the oil embargo and energy crisis that sparked a recession. I remember gas shortages and rationing causing lines of cars circling the block and energy conservation attempts like year-round daylight savings time and a national speed limit.

Adding fuel to the fire (pardon the pun), the early 1970s was one of the highest inflationary periods in history, seeing prices more than double in 10 years.

Market Returns and Portfolio Balance Beginning in 1973
Market Returns and Portfolio Balance Beginning in 2000
Market Returns and Portfolio Balance Beginning in 2000

We assumed a starting portfolio of $500,000 with an asset allocation of 60% stocks and 40% bonds throughout the entire horizon using the S&P 500 Index and the Bloomberg Barclays U.S. Aggregate Bond Index.1

We tested the "4% rule" assuming the investor started with an initial withdrawal amount that was 4% of the starting portfolio balance ($20,000 the first year). This amount was adjusted each year based on actual inflation2 in order to maintain purchasing power over the 30-year spending horizon. Many experts consider the 4% rule a safe starting point that helps investors navigate an uncertain market environment, especially at the onset of retirement.

White Paper

Read the Full Article

Retiring in a Bear Market

A conservative withdrawal approach early in retirement, especially if there is a bear market, can position retirees to weather market volatility over the long term.

1 Benchmark reflects the Bloomberg Barclays Government/Credit U.S. Bond Index for the period 1973–1975 and the Bloomberg Barclays U.S. Aggregate Bond Index from 1975 to the present.

2 Consumer price index, seasonally adjusted.


The hypothetical examples above are based on the performance of the S&P 500 Index, which tracks the performance of 500 large-company stocks, and the Bloomberg Barclays U.S. Aggregate Bond Index, which tracks domestic investment-grade bonds, including corporate, government, and mortgage-backed securities, for the time periods represented. Indexes are unmanaged, and it is not possible to invest directly in an index. These hypothetical examples are meant for illustrative purposes only and do not reflect an actual investment, nor do they account for the effects of taxes or any investment expenses. Investment returns are not guaranteed, cannot be predicted, and will fluctuate. All investments are subject to risk, including the possible loss of the money invested.

Important Information

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide fiduciary recommendations concerning investments; it is not individualized to the needs of any specific benefit plan or retirement investor, nor is it intended to serve as the primary basis for investment decision-making.

The views contained herein are those of the author as of February 2019 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Source for Bloomberg Barclays index data: Bloomberg Index Services Ltd. Copyright © 2019, Bloomberg Index Services Ltd. Used with permission. Past performance cannot guarantee future results. All investments involve risk. All charts and tables are shown for illustrative purposes only.

© 2019 T. Rowe Price. All rights reserved. T. Rowe Price, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

T. Rowe Price Investment Services, Inc., Distributor.

Tap to dismiss

Manage Subscriptions

Unsubscribe All

Manage your watched Funds and Insights subscriptions here.


Change Details

Congratulations! You are now registered.

Begin watching and receiving email updates for:


Sign in to manage your subscriptions and watch list.



Latest Date Range
Download Cancel

This content is restricted for Institutional Investors use only. We were not able to validate your status as an Institutional Investor with the information you provided at registration.

Please contact the T. Rowe Price Team with questions or to revise your status.


You will need to accept the Terms & Conditions again.


You have updated your email address.

An activation email has been sent to your new email address from T. Rowe Price.

Please click on the activation link in order to receive email updates.


You have an existing account

Click OK to view your subscriptions and watch list.


Confirm Cancel