Financial Moves When You Are about to Retire





It is January of 2008 and you are ready to retire! You’ve given your employer a whole year’s notice so you can train your replacement and make a graceful exit. You have contributed regularly to your company’s 401(k) plan for thirty years. You are feeling confident about your financial future because the stock market has boosted the value of your investments to $300,000 with solid returns of 26%, 9%, 3%, 14%, and 4%, respectively, from 2003 to 2007. You plan to draw on these funds as your primary source of retirement income.  


A Simple Rule: You’ve heard of the “4% Safe Withdrawal Rate” and understand it is supposed to be the amount you can take annually from your investments without running out. (Of course, this is a “rule of thumb” and not really a guarantee.) Applying the 4% Rule to your retirement account, you plan to take $1,000 a month to supplement the $1,500 you’ll get from Social Security. Your living expenses are modest and, as long as you can reliably get the $1,000 from your investments, you feel you can meet your obligations.  


Double-Check: To confirm the logic of your plans, you decide to meet with an independent Certified Financial Planner™ (CFP®) practitioner. You’ve got a whole year after all, and this is the biggest financial decision you’ve ever made. The CFP® professional asks you questions and you discuss your dependence on the income from your retirement account. He tells you that if you stay 100% invested in the stock market, you could experience significant losses, making the $1,000 monthly withdrawal unsustainable. You are floored! You tell him about the 4% Rule and your returns for the last five years. He reminds you of 2000, 2001, and 2002 – when the stock market lost 47%. You thank the CFP® practitioner for his advice, but decide to continue with your original plan.


Let It Ride: The economic news gets progressively worse throughout 2008. There are serious problems in the housing market, banks are incurring gargantuan losses, and the economy is shedding hundreds of thousands of jobs each month. The stock market falls significantly and your account hemorrhages $10,000 a month. By the end of the year, your account has fallen by 40%! If you keep to your planned retirement date, your 401(k) (which is now worth $180,000) will only provide $600 a month based on the 4% Rule. You’d like to wait for your investment account to recover before you start drawing on it, but you don’t know how long that’ll take. Your options are few. What do you do?  


This scenario really did happen to a lot of soon-to-be retirees. Thankfully, it isn’t 2008, but we could see another 40% stock market crash this year, next year, or in the near future. Take the opportunity now to think about how such an event would affect your finances, and future plans, as you draw closer to retirement.




Have a financial question you'd like answered here? Email:













David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to