It looks like we are headed for the worst year in the stock market since 2008. If you are in your 20s, 30s, 40s or even 50s, that should not matter. You have decades for the market to recover … and, assuming you are investing some of your paycheck every month, you are buying stock at lower prices.
But if you are in retirement, a down market is tougher. You are probably withdrawing from your investments, which means you are selling low. 2022 has been the most difficult year for retirees in decades, because even bonds have fallen.
How do you keep your financial plan on course, so you are still well-positioned for a long retirement?
Learn from yoga.
One of our clients who has taught yoga for 30 years explained the true benefit of yoga this way: it cultivates steadiness and ease in the body and mind.
Such discipline has clear benefits for a retirement plan.
Lesson 1: Be flexible.
One of yoga’s main benefits is improving strength, balance, and flexibility. Especially in retirement, flexibility makes your financial plan stronger. A retiree who can reduce spending during a bad investing year allows more of their net worth to recover when the market inevitably recovers. That allows for more spending in the future.
Many retirees have adopted the 4% rule to manage their spending withdrawals. It’s a rule of thumb which suggests that, if you retire at 65 owning a balanced mix of stocks and bonds, you can withdraw 4% of your portfolio in the first year, increase that annually with inflation, and be almost sure not to run out of money. The 4% rule was created by studying 75 years of market data.
The problem with this or any similar rule is it’s inflexible. While it tries to anticipate many different situations, the future constantly surprises us. No rule is infallible.
A better approach adds flexibility. It starts with a target withdrawal rate – 4% is often appropriate, but not always. Then it adjusts if markets are volatile. In a very good year, you can afford to withdraw more. In a very bad year, you should withdraw less. This approach usually has guardrails – for example, the downward or upward adjustment is never more than 20%. But by being flexible, you increase the likelihood of having sufficient financial resources even if you live a long life.
Lesson 2: Tune out the noise.
Yoga helps you relax, de-stress and sleep better. Some of that is the physical movement, but some is the breathing and inward mental focus. You must tune out the distractions of daily life. The same is true if you want to maximize your financial success. Checking your investment balances frequently accomplishes nothing other than adding stress to your life.
Lesson 3: Play the long game.
Like most exercises, the benefits of yoga play out over time, not immediately. Yoga requires regular practice – which means discipline and consistency.
I draw your attention to bonds. Bonds and bond funds have lost significant value in 2022. When interest rates rise, the price of bonds falls. If you buy or sell investments based on recent performance, you may lose patience, sell bonds, and hold cash. But bonds are now much more attractive than they were a year ago because they offer a much higher yield. For example, 5-year US Treasury bonds now pay over 4%, compared to less than 1% a year ago. This higher rate will benefit your financial plan over the long term.
While yoga is not the only solution to managing your physical, emotional, or financial health, there’s good reason it is so popular. And, like investing, you can practice it throughout your life.
Note: I want to thank our client who teaches yoga. Her insights on the benefits of yoga helped us relate its teachings to financial equilibrium.