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Post: The Moneyist: ‘What are the chances? I retire and the stock market crashes. All my plans are upside down.’ I want to draw on my 401(k) to renovate my new home. What options do I have?

Dear Quentin,

I’m due to retire in two months and I have already moved to my new home in the sun. I have not sold my apartment in a major U.S. metropolitan area on the east coast, as I wanted to see how I settled into my new life. It’s a quiet, but beautiful city on the west coast, and I wanted to see how I adapted to both the year-round sunshine and the slower pace of life. It has been a long road, but I have finally got here. I am finally able to relax. Or that’s what I thought.

But that’s not my problem. 

The stock market is my problem. My 401(k) is my problem. What are the chances? I retire and the stock market crashes. All my plans are upside down. What do I do with my 401(k) now? My original plan, as recent as last month, was to draw down my 401Ik) and use approximately $200,000 to renovate my house. I want to reorganize my kitchen, create a kitchen island that has both a gas cooker, and enough space to prepare food. The architect is drawing up plans. 

We are moving walls, not mountains, but I’m keen to get started. Do I borrow the money instead? What do I tell him?

Recent retiree 

Dear Recent,

Congratulations on retiring, first and foremost. It’s no small achievement in any market. You’ve clearly played the long game, saved, invested, bought two properties and — more than that — you have options. Options are a wonderful thing — they are a second-cousin twice-removed of freedom. You are free to do something, or nothing. Sometimes, choosing to do nothing is an action in itself, and that’s what I advise you to do now.

You do not want to draw on your 401(k) in a market like this. You don’t sell stocks in a down market, if you can help it and if you can afford to wait. And while you have just retired, it sounds like you are in a stable financial condition, so you can carry on as if nothing has happened on Wall Street. Live in your home before you decide to make any major changes. An architect will reflect your wishes — your very expensive wishes — and then some.

You’ve made a lot of changes already. I can see how exciting and impatient you are to get going on the renovation, but the pause may be a blessing in disguise. You may feel that by the time the market recovers — and it will recover, eventually — that you don’t need to move walls, or upend kitchens and bathrooms. Sometimes, a pair of glass sliding doors in the kitchen can work wonders, and bring the garden and all that extra light inside your home.

‘Options are a wonderful thing — they are a second-cousin twice-removed of freedom.’

About the other elephant in the kitchen: the stock market. Don’t take out a big loan in your retirement for a renovation. I would say that even if interest rates were not rising. Stick to the 4% rule: withdraw no more than 4% of your retirement assets, adjusting each year thereafter for inflation. This is a long-term strategy for retirees to avoid spending all of your retirement savings before you slip into that great kitchen island in the sky.

In fact, recent research by Morningstar suggests you should withdraw even less than 4%. They recommend that you withdraw 3.3% if you wish to safeguard your retirement savings and make sure they last for the remainder of your life. This 3.3% figure assumes a balanced portfolio and fixed withdrawals over 30 years, an estimated length of retirement years, equating to a 90% probability of not eating into all of your retirement savings.

Unlike a recession (two consecutive quarters of negative GDP growth) a market “crash” does not have a definition that is agreed upon by all economists. It usually refers to a sudden and severe downturn in stocks. Some analysts say it refers to a double-digit decline in a short period of time. But Jay Hatfield, chief investment officer at Infrastructure Capital Management, recently told MarketWatch it’s a 50% decline in a short period of time or over the course of a year.

There’s no sugar-coating this. It’s not a great time to hand over the keys to your office, and finally put away your stapler. The Dow Jones Industrial Average

is down 13% since January and the S&P 500

is down 18% and the Nasdaq

is 28% lower over the same period. By 60, advisers generally recommend that you should have had 50% in equities and 50% in fixed income, and reduced your equity allocation by 5% a year with 25%-30% in equities by the time you retire. 

Nice job on renting your city pied-à-terre, and giving your new life a trial run. That gives me confidence that you’re in better shape than your kitchen.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

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Also read:

‘At our age, should we do this?’ We’re retired, have $5 million in savings and earn $7,000 a month. Should we spend over $2.1 million to build our dream home?

​​‘We don’t have any children’: My family owns land that has been in our family for 100 years. I would like to leave this land to my wife. But what if she remarries?

‘How can I be fair to both?’: I spent $20,000 more on my daughter’s education than my son’s education. Should I level the playing field — and invest $20,000 in stocks for my son’s retirement?

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