What a Good Year to Retire. Really!

Nice to see Jonathan Clements back in The Wall Street Journal, even as a guest columnist. Investment advisers and financial planners can glean useful thoughts from his Case for Retiring in a Bear Market. A sampling:

The total value of your nest egg is not as important as you think it is. What really counts is the level of income that your savings can support.

If you plan to generate a chunk of this income through dividends and interest, as many investors do, it doesn't much matter that the Dow Jones Industrial Average has soared some 60% over the past eight months or that bond prices have been climbing. The dollar value of the dividends and interest you're receiving likely hasn't changed too drastically.

Today, with the stock market yielding less than 2½% and 10-year Treasury notes paying below 3½%, very few retirees could cover the bills solely with dividends and interest. Instead, seniors might need to create their own dividends—by occasionally unloading some of their investments.

True, you want to sell only when your stocks and bonds are up handsomely. But at the same time, you don't want to retire with a false sense of security because the value of your portfolio has been puffed up by a rip-roaring bull market. *** That's why bear markets aren't such a bad time to retire: If stock prices are already off 20%, 30% or more, a lot of the exuberance has likely been squeezed out of the market and you can have a little more confidence that you aren't looking at bubble prices.

Retiring in bad times doesn't guarantee dazzling results in the years ahead. Still, everything else being equal, if the stock market has been knocked lower, future returns ought to be higher—and thus every $1 saved should be able to support a higher level of retirement income.