The Investment Scientist

Should Retirees Be Worried About The Market

Posted on: September 30, 2022

In a previous article, I argued that for folks in the wealth accumulation phase, market discounts like we are getting now, between 22% of the S&P 500 and 33% of the Nasdaq, are actually good news. The same amount of money can now buy more enduring assets. And yes, owning more enduring assets in retirement is absolutely better than owning fewer! In the future, I shall write another article about what constitutes enduring assets (#). But back to the current topic.

I got an email from a retired client of mine, who asked: “What about me? I am past the accumulation phase. I need to draw a fixed income from my portfolio, and I just saw it shrink by nearly 20%.” We did a review of his portfolio, afterward, he felt much more reassured.

Did I do some kind of magic trick? No, I simply showed him what was hidden in his portfolio statements. I compared not just the value of his portfolio, but also his projected yearly portfolio income between August of last year to this August. Here is the comparison table. 

Here you can see that even though his portfolio value has dropped 17% since last August, his portfolio projected income has increased more than 10%. For a retiree who is living on a fixed income, this is great news!

So what happened? Why does the projected income increase? Before I provide the answer in another newsletter, I will let you guys brainstorm the possible reasons. This exercise will help you expand your perspective and stay calm even during a financial storm. So make your best guess and reply to this email. I will pick the three best answers and award the winners a copy of my book. 

But it’s not all good news. There is a scenario in which a big market drop like we have seen now could be bad for a retiree. That would be if he got sick and needed to sell a big chunk of assets to cover medical expenses. Then he would be forced to sell at a discount.  Yuck! 

Whether you are retired or not, staying healthy can be your best defense against a bad market! I am gonna start a new newsletter called “Health is Wealth”, if you are interested, you may subscribe here.

Schedule a 2nd opinion financial review, buy my wealth mgmt books on Amazon.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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