The stock market is falling, taking 401(k) balances along with it, tariffs are in place, federal government workers are losing jobs by the thousands and egg prices are up about 59% year-over-year.
If you were planning to retire in 2025, recent economic developments may give you pause. After all, who wants to exit the workforce with less money to spend in retirement? Especially since it can easily last over twenty years.
Against that backdrop, 2025 may seem like a bad year to retire, but whether that’s true for you comes down to how much you’ve saved, where you draw money from in retirement and how much you plan to spend during your golden years.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
“For people who are planning to spend principal money during their retirement years, then this is a tougher year to start,” says Christopher R. Manske, a certified financial planner and president of Manske Wealth Management. “But if they do not need to spend money, then 2025 is a great year to retire.”
Why 2025 could be a bad year to retire
When retiring in a down market, you must be mindful of the sequence-of-returns risk. That occurs when poor investment returns early in retirement negatively impact your retirement savings over the long run. In that scenario, you may need to sell parts of your portfolio to meet your income needs, likely at a low point. As a result, you could end up selling more than originally planned to compensate for the shortfall.
“So far 2025 is shaping up to potentially be a future period in which withdrawal rates are lower because the markets are going down,” says David Blanchett, managing director, portfolio manager and head of retirement research for PGIM DC Solutions. “The markets have done really well for a long time and was [sic] due for at least some kind of correction.”
The question, says Blanchett, is what flexibility do you have in how and when you make withdrawals from your portfolio in retirement? Will you have enough money for it to last your lifetime? “If you have to withdraw from the portfolio and returns are down 20%, that ultimately is a double whipping,” he says.
Another risk of retiring in a weak market is becoming overly conservative to staunch a bleeding portfolio. That may prompt you to sell all your positions and move to cash, exacerbating your losses because you’re not giving the portfolio time to recover.
If history is any evidence, investors who stay the course in down markets tend to recoup their losses and then some. That was the case during the Great Recession of 2007-2009 and the early days of the COVID-19 pandemic.
“Often retirees get uber-conservative and move into cash and lock in their losses. Historically, the right play is to give the portfolio a chance to recover,” says Blanchett. He says retirees who do move to cash tend to commit the cardinal investing sin: they sell low and buy high. All of that could mean less money to live off in retirement.
Plus, if you do have to reenter the workforce because you are running out of money, you may have a difficult time getting a job comparable to your old one. You might even have to take anything to bring in cash. That's a recipe for a miserable retirement.
“I think a great way to look at this is the simple question: do I have enough income coming in, without selling any holdings, to cover my expenses,” says Manske. “If you don’t see any need to sell a single holding for the next three years, then there’s no need to wait. If you do see the need to sell, then you might seriously consider waiting to retire.”
Why 2025 may be a good year to retire
Stocks rise and stocks fall. If you have been doing your job by saving for the long term, diversifying your portfolio and keeping your debt in check, then 2025 is a perfectly fine time to retire.
After all, inflation is stable, at least for now. The Consumer Price Index for February increased by 2.8% year over year, lower than economists expected — and it’s yet to be determined how tariffs will impact everyday goods and services.
But before you make the leap, Emily Irwin, head of Wells Fargo’s advice center, says to do a pulse check of where you’re at to ensure you can withstand potential losses in your portfolio in the first few years of your retirement.
Here are some key questions you should ask yourself.
- Have I been maxing out my 401(K) and making catch-up contributions?
- Have I worked with a professional adviser to ensure I'm taking advantage of tax structures?
- Is my living situation affordable and stable?
- Finally, can I emotionally handle a decline in my portfolio when I no longer collect a paycheck?
Irwin suggests reviewing your retirement plan and running scenarios. Will you have enough cash in retirement if the portfolio is down 10%? If you start taking 401(k) or IRA distributions and they are depleted, will you still be OK?
“The purpose of retirement is to move on to the next chapter, whether that’s to spend time with family, travel or whatever your next chapter is. If you don’t think you will enjoy it, punt until next year,” says Irwin. “If you can compartmentalize noise, you’ve done the right things, and you don't need to make any trade-offs based on how you saved over the last few decades,” then full steam ahead with your retirement plan.
Related content
-
Tax-Deductible Home Improvements for Retirement in 2025Retirement Taxes Your aging-in-place plan could benefit from the medical expense tax deduction. But watch out for capital gains and property taxes.
-
How Emerging Technologies May Influence the Future of Capital MarketsUpdating legacy systems with next-generation AI can enable fully automated trading, risk assessment and liquidity optimization.
-
Living Solely on Portfolio Income in Retirement: Can it Be Done?Relying only on portfolio income is achievable for high-net-worth individuals and those with the right mix of investments. Is it for you?
-
Five Ways to Safeguard Your Portfolio in Market DownturnsThe stock market is nothing if not volatile these days. When it takes a dip, a well-managed, properly diversified portfolio could help you ride out the storm.
-
Seven Social Security Field Offices Are Suspending In-Person ServicesA departure from closing locations, seven local Social Security offices will temporarily stop all in-person service and will only be available by telephone.
-
Four Roth IRA Pitfalls Your Adviser May Not Tell You AboutYou may not be bound for Mordor, but Roth IRA pitfalls could upend your retirement if you're unaware of them.
-
This Underused IRA Option Offers Tax Benefits and Income SecurityLooking to avoid running out of money in retirement? Consider longevity protection provided by a QLAC as a component of your retirement income plan.
-
Social Security New Rule: Overpayments Must Be Paid Back 100%. Why It MattersAs of March 27, the SSA will require beneficiaries who have been accidentally overpaid to repay 100% of the money, reversing a previous policy that allowed for only 10% recoupment.
-
Medicare and Medicaid Employees Offered New Buyouts: What You Need to KnowFederal HHS workers who inspect food, research diseases and administer Medicare and Medicaid are offered $25,000 buyouts
-
What Is a Portable Retirement Plan and Should You Have One?Portable Retirement Plans allow employees to take their retirement savings with them when they change jobs without losing their accumulated savings.
