If you are a stock investor, there is no time that you are at the mercy of the stock market quite like during your retirement. After all, if you buy shares of Coca-Cola during your 20s, 30s, or 40s, you can weather a stock market crash. All you have to do is hold your shares steady, reinvest the dividends, and then coming out owning more Coca-Cola stock once the economy improves. But, if the stock market crash of 2008 coincides with your retirement, then you do not have that luxury.
Let’s try this hypothetical example. You decide to invest in General Electric during the 1970s. After all, it’s a stodgy blue-chip that has been delivering excellent returns to its investors for over a century. Seems like a no-brainer, right? And then Jack Welch runs the company phenomenally well during the 1990s and early 2000s, as you pad yourself on the back for making such an outstanding investment. And let’s say you continued to hold the General Electric (GE) stock after you retired at the end of 2007. When the recession hit in 2008, the stock completely tanked, falling to as low as $6. And if you were relying on GE dividends to fund your retirement lifestyle, you would be incredibly disappointed to know that they reduced their dividend payments by over 75% during the recession. If you were relying on GE dividends to pay for your retirement, you would be out of luck—a very poor consolation for a lifetime of sedulous investing.
The moral of the story is to diversify your investments, and if a severe recession hits during part of your retirement, you should adjust your withdrawals to the best of your ability to make out only enough money so that you can ensure that you never run out of funds.
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