The Iran conflict has shaken global markets, from oil and stocks to food and energy. While the overall stock-market fallout has been somewhat measured, it still takes on outsize importance for those close to or in retirement.
There’s a 10-year window when people need to be especially careful about their investments and strategies, to assure their full retirement goes smoothly and their money lasts through decades of retirement. This “fragile decade” of preretirement years leading up to retirement and the first five years after you stop working are critical to get right.
Blame sequence-of-returns risk, which essentially means that when you’re taking withdrawals from a portfolio, the order — or the sequence — of investment returns can affect your portfolio’s overall value. Basically, account withdrawals during a bear market are more damaging than the same withdrawals in a bull market, because you’re selling when stock values are down.
“People watch the headlines too much — the sensationalizing of it all. I bet people think the market’s down much more than 5%,” said Steve Azoury, owner of Azoury Financial in Troy, Mich.
Read: Retiring in a bear market can be catastrophic — working one more year can make a huge difference
While we’re not even close to a bear market — defined as a decline of 20% or more — investors and consumers still have felt some pain recently. Oil prices CL00 BRN00 have jumped, and gas prices are up about $1 a gallon in the past month. And while the S&P 500 SPX has fallen about 3.7% since Feb. 28 — when the U.S. and Israel launched airstrikes on Iran, killing Iranian Supreme Leader Ali Khamenei — the index is still up 15% over the past 12 months.
“A 5% pullback should not affect an average retiree. Before the conflict, you should have already been well diversified and had your short-term spending needs in less risky assets,” said Brian Schmehil, managing director of wealth management for the Mather Group. “Five-percent drops are extremely common and should not derail any of your long-term goals. Even if you need to sell some investments now as you approach retirement, the recent volatility shouldn’t have a major impact on your financial goals.”
Schmehil said the market could have a negative impact on preretirees who have lump-sum pension payout or a one-time, upfront cash payment representing the total value of their future monthly pension benefits. He explained that the Iran conflict has led to an expectation of higher, sustained inflation, which has pushed bond yields up further than before the conflict began.
