Is Now a Bad Time to Retire?

Retiring during a market downturn and soaring inflation can feel like sailing into the wind instead of the sunset.

The market’s performance in the first few years of retirement can have a big impact on how long a nest egg lasts, partly because losses take a bigger bite out of a portfolio when it is typically at its largest, advisers and economists say.

Of course, it isn’t always possible to time your retirement to coincide with a bull market.

But those nearing retirement right now can take some comfort in research that shows that even people who retired in the worst time to do so since 1926 would have made their money last 30 years by sticking to certain rules. As the stories of the four retirees The Wall Street Journal profiled this week show, even those who retired in 2008 have done fine provided they managed their money well.

Negative returns at the start of retirement, when a portfolio is usually largest, create a problem because the combination of market losses and withdrawals can leave a portfolio too depleted to last decades.

“The five years after retirement are a pivotal period for determining a sustainable lifestyle in retirement,” said Wade Pfau, a professor at the American College of Financial Services in King of Prussia, Pa., and author of “Retirement Planning Guidebook.”

Consider a 62-year-old who retired on Jan. 1 with $1 million and is following the 4% rule to determine how much to spend in retirement. (Such an approach, which has been questioned recently, calls for spending 4% of a balance in the first year of retirement and adjusting that amount in subsequent years to account for inflation.)

After taking the first annual withdrawal of 4%, or $40,000, the investor would have $960,000 left. With a 15% loss in the first year, the balance would fall to $816,000. Two more years of similar withdrawals and 15% losses would leave about $527,000 to last potentially for decades.

By contrast, a 62-year-old who retires with $1 million and experiences 15% annual gains would have about $1.36 million after three years of $40,000 withdrawals.

Despite the market’s importance in early retirement, history shows that the portfolios of people who retire in down markets can recover.

Thanks to the long bull market and low inflation that followed the financial crisis of 2008, someone with 50% in stocks who retired with $1 million on Jan. 1, 2007, and spent $40,000, adjusted annually for inflation, would have had about $874,000 left after two years, but would have about $1.63 million today.

“As long as you didn’t panic and sell your stocks in 2008 you’d be doing fine today,” said Mr. Pfau, who crunched the numbers for a portfolio with 50% in U.S. large-cap stocks and 50% in intermediate-term U.S. government bonds.

Another lesson for retirees contending with losses is to cut spending if possible, since “if you’re overspending from a portfolio that is simultaneously dwindling, that just leaves less in place to repair itself when the markets eventually recover,” said Christine Benz, director of personal finance at Morningstar Inc.

The worst 30-year period in which to retire began in the late 1960s. Those who retired then were clobbered with back-to-back bear markets that started around 1969 and 1973, plus years of high inflation. These factors caused many to drain their nest eggs faster than they would have otherwise, although many in that era were able to fall back to some extent on traditional pension benefits.

If markets slide and inflation remains high for the next couple of years, as some economists have predicted, Mr. Pfau said it could create “the perfect storm,” leaving investors with a choice between withdrawing more from a shrinking portfolio or cutting spending to try to protect their nest eggs even as prices rise.

Here are steps retirees can take to improve their odds of making their money last:

Cut spending when markets decline

The 4% rule would have protected retirees from running out of money even in the worst 30 year period since 1926 in which to retire, which turned out to be from 1966 to 1995, according to Mr. Pfau.

For current retirees, Mr. Pfau recommends forgoing inflation adjustments following any year in which your portfolio incurs losses.

“A very small change in spending can have a dramatic effect,” said Mr. Pfau.

For example, someone who retired in 1966 and stuck to the 4% rule would have run out of money after 30 years. But by spending 3.8% to start instead, the investor would have preserved most of his or her original nest egg by year 30, he said.

Manage volatility

People entering retirement often have 40% to 60% or more in stocks to help their nest eggs grow.

A 2014 study by researchers including Mr. Pfau finds that those who start retirement by reducing their stockholdings to 20% to 30% of their portfolio and then gradually push it back up to 50% to 70% in stocks have the highest probability of making their money last 30 years using the 4% spending rule.

Those who take a different approach, tapering stockholdings from 60% to 30%, are likely to run out of money after 28 years in the worst-case scenarios, according to the research.

That said, the conventional approach of starting retirement with more in stocks and reducing that exposure over time comes out ahead if stocks fare well in the early years of retirement. But reducing stock market exposure up front provides better downside protection in those early years, when retirees are most vulnerable to financial losses, says Mr. Pfau.

Use other assets

When markets decline, rather than sell stocks at a loss, retirees with whole life insurance may be able to withdraw from their policies to meet living expenses. Another option is to tap home equity with a reverse mortgage line-of-credit. There can be downsides, including high fees on reverse mortgages, so weigh the pros and cons carefully, Mr. Pfau said.

You’re oh so busy. You’re on Slack and email and back-to-back Zoom calls , sometimes all at once . Are you actually getting real work done?

Cal Newport doesn’t think so.

“It’s like, wait a second, none of this mattered,” says the Georgetown University computer science professor and crusader for focus in a distracted age.

Newport, 41, says we can accomplish more by shedding the overload. He calls his solution “slow productivity”—and has a book by the same name —a way for high achievers to say yes to fewer things, do them better and even slack off in strategic doses. Top-notch quality is the goal, and frenetic activity the enemy.

This, he told me, is the thing that can save our jobs from AI and layoffs, and even make shareholders happy.

I had questions. Can we really be less is more at work, or have we grown addicted to constantly crossing endless tasks off our to-do lists? What will our bosses think?

After all, so many of us yearn for a burnout cure-all that will preserve our high-achiever status, and this isn’t the first you-can-have-it-all proposition we’ve heard. Champions of the four-day workweek promise we can ditch an entire workday just by working smarter. Remote-work die-hards swear it’s a win for employers and employees. Few dreams are more seductive than bidding goodbye to hustle culture, while still reaping the benefits of said hustle.

Newport acknowledges that saying no to preserve our productivity can be a delicate act. He knows that entrepreneurs have more flexibility, but says those of us who answer to managers can carve this out too. We might even find we have more power and value to our employers.

“You should take that value out for a little bit of a spin,” he suggests. He offers some pointers.

Less is more

The way we work now is a “serious economic drag,” Newport says. Knowledge workers have devolved into a form of productivity that’s more about the vibes—stressed!—than actually making money for the company. Data from Microsoft finds that lots of us spend the equivalent of two workdays a week on meetings and email alone.

One mistake we make, Newport says, is taking on too many projects, then getting bogged down in the administrative overload—talking about the work, coordinating with others—that each requires. Work becomes a string of planning meetings, waiting on someone from another department to give us a go-ahead.

Newport recommends giving priority to a couple projects, then bumping the others to a waiting list in order of importance. Make that list public, say, in a Google doc you share with bosses and colleagues.

“When workloads are obfuscated behind black boxes, it’s just people throwing stuff at each other, it’s very dangerous to say no,” Newport says.

If someone comes to you with more work, have them consider where it should go on your list, Newport says.

When you do say yes, double the estimated timelines you set to complete a project. That’s how long it’ll take to do it well, he says. And try what he calls a “one for you, one for me strategy.” Every time you book an hour-long meeting, block an hour for independent work on your calendar.

Be the one to trust

It’s a foreign and bracing approach for those of us who reflexively say yes to work requests. Newport’s philosophy requires transparency and confidence. Instead of “let me see how fast I can turn that around!”, try, “This request will take six hours. I’ll have that time in three weeks.”

This could be heresy at some companies. The trick is in the delivery, he says. Never make it seem like work tasks are a burden you shouldn’t have to face. Instead, stress that you’re trying to be as effective as you can for the team and the company. Be positive, and deliver on the timelines you promise. You’ll be seen as someone who’s organised and on top of your game.

We think bosses want someone who’s always accessible—fast to respond, fast to jump into action, Newport says. But what bosses really want is to know that a project they hand you will get done.

Bite-size shirking

Quiet quitting permanently is a bad idea, Newport says, but a little bit is good.

Don’t feel guilty, he adds. You’re working under a new, better system. We weren’t meant to work all out , every day, without seasonal shifts and pauses.

Pick a time—say, the month of July—to slow down. Don’t volunteer for extra work. Don’t offer Mondays as a possibility for meetings. Take on an easier project for cover.

He also recommends taking yourself out to a monthly movie during the workday. Say it’s a personal appointment, and enjoy the sense of control and creativity it brings.

You don’t have to nail a manifesto to the wall, he adds, or try to change the whole company culture. Instead, quietly carve out change for yourself.

Coming into your power

The catch: You have to be really good at the part of your job that matters. And you have to get big stuff done. Remember, this is about being a happier high performer, not slacking.

“There’s no hiding,” Newport says.

I suspect this terrifies a lot of people. They’ve gotten good at being always on and typing up yet another meeting agenda. Tackling a major project or goal is often harder, and comes without a guarantee that you’re going to nail it.

Scary or not, real work is becoming imperative. AI is coming for the rote parts of our jobs. Leaders are sussing out the “nonsense” projects and roles in their ranks as they cut jobs, Newport says. No boss wants to be left with a team of people who are aces at responding to emails.

Mastering a valuable skill puts you in control. Newport writes of people who leave corporate America behind and move where they want , working remotely as contractors, charging wild fees for fewer hours of work. The more you shed the work that doesn’t matter, and spend that time getting better at the stuff that does, the more leeway you’ll get.

“The marketplace doesn’t care about your personal interest in slowing down,” Newport writes. “If you want more control over your schedule, you need something to offer in return.”

Figure that puzzle out, and you might just be able to have it all—high achievement, and your sanity.