Is it wise to retire in a down market?  Does it hurt your portfolio and make the risk too large to overcome if you are going to survive for 30 or 40 years?  T.Rowe Price writes up a nice article about what to do if you are thinking about retiring in a down market.

The article says the first 5 years of retirement is the most crucial to maintaining your portfolio.  And in a down market the only option might be scaling back the amount you need to retire.  This is because you are potentially taking out 4% a year while the market could be sinking 20%.  And thus you are digging yourself into a deep hole.

One suggestion is keeping the amount you withdraw the same, instead of increasing your withdrawal by 3% to keep up with inflation. This gives you a 89% of success of not runnning out of money.  A second more conservative option, is to cut withdrawals by 25% for the first few years and this gives you a chance of not running out of money at 99%.  Final suggestion was to switch to an all-bond portfolio so you don’t lose money, but pretty much guarantees you won’t have enough because the returns on bonds won’t be high enough to sustain your portfolio.

The predictions in this article were done using a Monte Carlo simulation. This uses predictive algorithms to determine the possibilities of running out of money, etc as a percetange rather than a yes/no answer.

I’m surprised that the article didn’t mention two major possibilities.  One work a few more years and instead of drawing on your retirement portfolio, keep saving into it.  This will mean less years drawn on and more years saved.

Second, get a part-time job.  This will supplement the income you need in retirement and thus your need to draw on your portfolio might be halved or less.  I know many people do this out of necessity, and if the markets continue on their roller coaster ride it could be necessary for everyone.  And perhaps not everyone is ready to fully “retire” at once and instead need a gradual slowdown.

What are your strategies for retiring in a down market?  Personally I think I would continue working or get a part-time job.