Another instalment in a series of articles detailing how to design a secure, income-producing portfolio

Consider a hypothetical baby boomer named Chuck Price, an optometrist who turned 65 in 2020. Chuck has a spacious home in Connecticut and a condo in Florida. His two kids are still in college, but his mother-in-law is generously covering their tuition. His net worth is around $3 million and he’s accustomed to spending around $250,000 a year. He’s excited about working less, and he’s got a plan to go part-time and sell his practice to a younger doctor.

But right around the time he’s planning to reduce his hours, there’s a big market correction. There’s a slight rebound after that, but then another drop. Now investors are spooked and the trend is downward. Chuck becomes afraid. He postpones his plan to reduce his working hours.

It turns out that postponing his partial retirement was a good idea – because, in the next 18 months, markets decline a jaw-dropping 46% from where they had been before that first big correction.

Chuck’s portfolio was mostly in index funds, so his loss mirrors the market. He can’t believe this is happening, but the portfolio that he’s been funding for decades is down almost 50%, right at the moment when he had planned to kick back. Chuck is ripping his hair out. He realizes that he’s going to have work longer than he anticipated. Dr Price starts to take a hard look at his spending. He concludes that it’s time to sell his big house – the kids are gone anyway – but when he goes to talk to a Realtor he discovers that he won’t get anywhere near what he wants for it, because a lot of other people have had the same idea at the same time. The local market is flooded with houses just like his. He looks into selling the Florida condo. And he finally acknowledges he’s got to tighten his belt – he and his wife will eat out and travel far less, for starters.