Quell your fears so you can sleep at night.
A friend of mine retired around the time I left work for a mini-retirement.
I recently talked to him and found out that he returned to work as a contract employee.
He cited fears about the economy, especially the state of the stock market and inflation, as the drivers for his decision.
My friend is not alone.
According to an analysis by Nick Bunker from Indeed, 1.5 million retirees reentered the workforce within the last year. That’s 3.2% of those who retired during the timeframe.
Fear is a significant driver for those who return to work.
Last year, the economy was on a roll, and the stock markets hit all-time highs routinely. Many, like my friend, saw their portfolios grow immensely over the last few years. It seemed like a great time to retire.
Inflation is now running at 8.6% as of May 2022, and stock market performance has soured the mood. The S&P 500 is down over 20% as of June 30, 2022.
Although many retirees plan for worst-case scenarios, it’s frightening to see those scenarios play out.
People start to worry if they make the right decision. Will their plan work with the current economic environment?
My friend feared he would be drawing down on an already diminished portfolio. His emotions kept him from sleeping well at night.
While enjoying life after work, his fears about the long-term effects of the economic downturn on his retirement were dragging him down.
The best time to return to work is soon after you leave.
Your skills are likely still sharp soon after you leave the workforce. A very short retirement is not unlike a sabbatical or mini-retirement.
While layoffs are happening, many segments are still struggling to fill positions.
My friend didn’t have to search to find a job. A recruiter reached out to him on LinkedIn. The role was a good fit for his skills, and the pay was good. And overnight, he went from retired to employed.
Finding work is pretty easy for now if you have an in-demand skill. The economy’s future is uncertain, but there are still many opportunities for those who want to return.
Sleeping at night is more important than being retired.
Historical research, including the Trinity Study, shows that you have an extremely high chance of success (95%) in retirement if you withdraw 4% of your portfolio.
Historical data cannot predict the future.
While you might feel entirely comfortable with the historical success rate when the markets are marching to new record highs, doubts can ruin your day when the tables turn.
My friend is no longer drawing from his portfolio. His new job covers his living expenses, providing time for the economy and markets to recover.
He enjoys the work he’s doing. In fact, he enjoyed his career before he retired. His enjoyment of work and the comfort of not drawing from his retirement portfolio helped calm his fears. He’s sleeping much better.
Personal finance is personal.
Some are pretty comfortable with their retirement decisions and sleep like a baby despite the state of the economy. Others stress out to the max.
You have to address your situation uniquely to ensure that you don’t live life in fear. If that means returning to work to help you sleep at night, that’s the right decision.
Emotions can result in poor decisions.
While you must do what is best for you, it’s important to separate emotions from your financial decisions. This can be very difficult to achieve.
Emotional decisions can lead you to sell when markets are down to stop the losses. Selling when equities are on sale is a recipe for disaster. The market is on sale, and that’s the time to buy, not sell.
Those who let their emotions dictate money decisions will likely see even more significant long-term losses than those who can pull it together and ride out the storm.
Retirees are at greater risk because they are not likely to contribute to their portfolios to offset losses.
Poor decisions can amplify fear and drive a retiree back to work.
Adapting to current economic conditions can reduce fear.
There is no set rule to spend a certain amount each year in retirement. Instead of returning to work, retirees can choose to put off some optional spending — perhaps skipping a vacation or pushing out a home improvement project.
When your portfolio is down, you can scale back spending. For some, this is enough to put their minds at ease.
If you recently retired, you may fear the economy’s future. Downturns in the first few years of retirement are the most painful and likely to cause long-term problems.
Returning to work is an option to quell your fears. Many companies are still struggling to find employees, despite a questionable economy. The best time to return to work is shortly after you leave. Many, including my friend, find well-paying jobs quickly.
You can also choose to modify your spending to ride out the downturn in the markets. Putting projects and vacations on hold can help you weather the storm.
Your situation is unique to you. You need to do what will help you sleep at night. For some, that means going back to work. Others don’t feel stressed or can modify spending to achieve comfort.
No matter your choice, make sure you are not making financial decisions based on emotions. Those have the potential to damage your retirement in the long run.
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