If you are watching your 401(k) go up and down like a yo-yo the last few weeks, you might be wondering whether you should delay your retirement until things are more stable.
I’m not a financial advisor, and I don’t know anything about your personal assets, income, or expenses. So, I can’t help you decide what to do. So I will just explain how I think about this.
First, uncertainty is what is causing the market chaos right now. And if uncertainty continues, many economists think the recession will start. Other economists believe the recession is already here.
Markets become stable and grow when business leaders trust the economic climate and are willing to invest, thereby growing and increasing future profits. Markets contract when business leaders no longer trust the financial environment. Absent that trust in the economic climate, they cut expenses and hoard cash to survive the future economic storm.
Tariffs are a little different. When businesses order products from overseas, it can take a few weeks or months for the order to arrive at the dock in America. When the tariff amount changes frequently, the cost to produce and sell a product in America fluctuates several times before the product even reaches the dock in America.
So, the business owners are afraid to order products again. They simply can’t predict whether they will lose or make money once that product is sold in America.
In this case, the tariffs are causing market chaos because they are changed every few days or weeks. Tariff instability causes so much uncertainty the markets will not stabilize until they are settled.
But there is an even bigger monster walking through the front door that tariff instability has opened. That monster is a loss of faith in the US dollar. Normally, when stock markets weaken, there is a flight to the stability of the US dollar in the form of US Treasuries.
So far, US Treasuries have survived for the most part, but if the US continues to create tariff chaos both within and outside the country, it is anyone’s guess where the future flight to safety will go. My bet is still on the US dollar, but I do hope certainty returns to US economic policymaking.
So, should stock market tariff chaos delay your retirement?
In a way, your life is similar to a business owner. To make decisions, you have to know what your income and expenses will be. You have to understand what your income will be and what your costs will be.
So, I’ll give a few examples of when I might delay my retirement and when I might retire anyway, even if the chaos continues.
I will first share examples of what I would do if my retirement were primarily based on a pension or social security. Then I will share an example of what I would do if my retirement were based on stocks, bonds, or savings.
If I were still working
Example 1: If I were still working in my home country and my projected retirement income (pension or social security) was only slightly more than my projected retirement expenses, I would wait to retire to see what happens to inflation in the meantime.
Some economists believe that the U.S. tariff policy will lead to inflation. I would wait to see if that happens before making a final decision. In an example where my projected income and expenses are close, inflation could ruin my retirement so that I would wait and see.
However, if I had significant additional assets above and beyond my projected retirement income that I could use to supplement any extra expenses caused by inflation, then I might consider retiring anyway. I would run that idea by my financial advisor.
My other option would be to explore retiring overseas. If I could lower my projected expenses substantially by living overseas in places like Latin America or Southeast Asia, I might consider retiring anyway.
After living overseas for the last 18 years, I know of a few places where I could easily live for much less than in my home country, the US. Not knowing you or your lifestyle, I can’t say whether that’s a possibility for you. You should do an exploratory visit overseas to a few of these cheaper places to find out.
Finally, if I were still working but had substantially more predicted retirement income than retirement expenses, I would run the idea by my financial advisor to see if they thought I had enough to retire during market chaos or feared inflation.
If I were already retired but still living in my home country
Example 2: If I were already retired, living in my home country, and my retirement income was only slightly more than my retirement expenses, I might look for part-time work that I really enjoyed instead of waiting until many other retirees are forced into the job market by inflation.
As before, if I had significant additional assets above and beyond my retirement income, that I could use to supplement any inflationary expenses, or my retirement income was significantly more than my retirement expenses, then I would just watch inflation for now, to see what happens.
As before, my other option would be to explore retiring overseas. If I could lower my projected expenses substantially by living overseas in places like Latin America or SE Asia, then I may move my retirement overseas once I have verified it personally with an exploratory visit.
Retiring overseas carries significant risks that vary greatly depending on your personal circumstances. Discuss these with your lawyer and accountant before making a final decision. After discussing what I would do about stocks and bonds, I will share my thoughts on foreign currencies and Bitcoin.
If I were considering retiring now by living off only stocks and bonds hammered in the recent market chaos
Example 3: If I were considering retiring now by living off only stocks and bonds hammered in recent market chaos, I would want to talk to my financial advisor immediately. I would also read the book “The Simple Path to Wealth” by J.L. Collins, also known as The 4% Rule.
Between your financial advisor, who knows your financial details, and the questions you ask the advisor after reading the J.L. Collins book, cover to cover, you should be able to safely determine if you are ready to retire during these chaotic times.
Basically, the book describes how to set up emergency savings, stocks, and bonds so that you have a financial plan with a high probability of lasting until you pass away. With your financial advisor looking over your shoulder poking wholes in any hot air balloons you are telling yourself, your chanes are even better.
With your existing assets set up in this way, you will know your retirement income numbers.
You could potentially lower your retirement expenses by being frugal in your home country or by retiring in a country with a lower cost of living overseas. But don’t even consider retiring overseas until you have (1) done an exploratory visit there to verify your personal expenses overseas, and (2) discussed that option with your financial advisor, accountant, and attorney.
Foreign Currencies and/or Bitcoin
Earlier, I spoke about a more enormous monster walking through the door opened by tariff instability — a loss of faith in the US dollar. I said that if the US continues to needle the world with tariff chaos, it may eventually drive the flight to safety to other assets or currencies.
I also said I will keep watching, but my best bet still remains on the US dollar, but I also hope certainty returns to US economic policymaking before the door opens wider.
From time to time, people ask me about holding assets in other currencies, such as the Euro, British Pound Sterling, or Singapore dollar. That is outside my wheel house, but i hope to have another guest on soon that will share some ideas on that.
I will mention that if you decide to open foreign currency accounts at banks in the USA, be sure to verify that the funds are covered by FDIC deposit insurance.
Finally, some of you have made a killing on Bitcoin. But I still haven’t put any money in crypto. But if I were ever to change my mind on that subject, I would never risk more than say 5% of my assets in crypto. My thoughts on Bitcoin are most similar to those of Warren Buffett.