Well, it’s baaaaack…and you know what: stock market volatility. And it came back with a vengeance a few weeks ago, moderating some in recent days. Presidential administration transitions ordinarily create uncertainty and instability, but wars, tariffs, and deportations are stirring the pot a little more than usual.
I occasionally get asked how I think a particular retirement investment portfolio, which usually holds between 40% to 80% stocks, might compare to the returns from a Social Security benefit or a lifetime annuity. (Let’s assume a ”60/40” stocks and bonds portfolio for this discussion.) The question might go something like this:
“I only need a return of X% from my portfolio to beat the income I’d get from an annuity or by delaying Social Security.”
It’s a fair question and a tempting line of reasoning. However, it often oversimplifies a complex issue and can lead to risky conclusions.
Let’s dig into this a bit. The bigger issue here is how we think about “returns” in retirement. It’s not just about chasing a number or outperforming another income source. It’s about timing, risk, and what those returns are for. And maybe most importantly, it’s about aligning your investment strategy with your purpose and priorities—something we, as faithful retirement stewards, should be deeply concerned with.
It’s not just about return—it’s about the risk
The most common mistake I see is this: someone looks at the returns on a low-risk option, like a deferred income annuity (DIA) or the 8% per year increase from delaying Social Security, and decides they can beat that by investing in stocks. After all, the market has historically returned 7–10% plus over the long run.
That kind of thinking ignores two significant issues: timing and volatility.
When you start spending from your portfolio in retirement, you’re no longer just investing for some abstract future. You’re drawing down actual dollars to pay actual bills. That introduces the sequence of returns risk, which is the danger of selling investments at a loss early in retirement, which can dramatically reduce your portfolio’s longevity.
And that brings us to an often-overlooked idea: liability matching.
Matching your investments to your retirement needs
Consider your retirement expenses as liabilities—known or reasonably predictable future cash needs. (Some may refer to these as “buckets.”) Liability matching is about choosing investments that mature or payout when you need the money.
When you’re saving for something specific in the future—a wedding, a car, a house, a big vacation, or even the purchase of an annuity—you’re not just trying to grow your money; you’re trying to be sure it’s there when you need it.
If you know you need $15,000 in four years to help my daughter with a wedding, you don’t want to gamble with that money in the stock market. Sure, you might come out ahead, but you also might not. And “might not” is a dangerous way to plan for something important.
If you had withdrawn the money you had invested for your daughter’s wedding on March 13th, it would have been about $15,000 less than what you had on February 19th, when the S&P500 peaked—it lost 10% between 2/19 and 3/13.
Let me offer some other examples.
Strategies that many miss the mark
What if you wanted to claim Social Security early and invest those benefits in the market for four (4) years, then use the proceeds to buy a single premium immediate annuity (SPIA)? What return would you need to make this come out ahead of just delaying Social Security benefits, which increase 8% annually up to age 70?
Or, what if you wanted to buy a deferred income annuity (DIA) but wanted to wait 15 years before pulling the trigger? In the meantime, you’d invest the money you would have used to buy a DIA today in stocks. Perhaps you could earn about 7% annually and break even compared to buying the annuity now.
In both cases, the logic seems sound on the surface. But it’s based on the assumption that returns are predictable and controllable—as if you can decide to get 7% or 8% per year. Unfortunately, the market doesn’t work that way. The fact that you need a certain return doesn’t make it any more likely to happen. (I liked The Rolling Stones in their early years. Mick Jagger had it right: “You can’t always get what you want… sometimes, you might get what you need.” Might.) Check out the video; I’m pretty sure Jagger is wearing makeup:
And even if you hit that return target, there’s still a big problem.
Betting the farm to buy a fence
The whole point of these strategies is to eventually lock in “safe” income. Does exposing the money you’ve earmarked for safety to several years of market risk make sense?
That’s like saying, “I want to buy something very stable and secure, but first I’m going to take it to Vegas and see if I can double it.” Sure, you might win—but what if you don’t?
Not only that, but DIAs are generally cheaper than single premium immediate annuities (SPIAs), and delaying Social Security is often the best deal of all. So, you’re not just trying to beat an 8% guaranteed increase but also to compensate for the added cost of waiting to buy income.
Plus, Social Security is inflation-adjusted, and most commercial annuities aren’t (or they’re costly and pay out less in the early years if they are). That gives Social Security another major edge in this analysis.
So, we can’t assume that this is an even playing field. It isn’t.
What could go wrong?
You built your retirement strategy around assuming you’ll earn an average return of 7% to 8% from the market over time. You’re planning to delay buying an annuity or claiming Social Security because you can do better in the meantime. After all, that’s what the long-term averages say.
But here’s the thing: the market doesn’t move in straight lines. It zigs and zags—sometimes violently. And if your timing is off, even by a year or two, it can wreck your carefully laid plans.
Most of you remember the Great Recession of 2008–2009 as a cautionary tale—and rightly so. From late 2007 to early 2009, the S&P 500 fell more than 50%. That’s not just a blip; that’s a crater! It was unlike anything I had experienced in my lifetime, except the Dom-Com Crash, but that was over three years.
Imagine you started one of these strategies in 2005—claiming Social Security early or pulling cash from a bond ladder to buy an SPIA in 2009—and suddenly found yourself with half the assets you expected. The market averages wouldn’t have mattered. What mattered was that you needed the money at the worst possible time.
But that wasn’t the only major downturn in recent memory:
- 2000–2002 Dot-Com Bust: The S&P 500 dropped nearly 50% over three years. Tech stocks got hammered. Retirement accounts were gutted. It took until 2007 for the market to fully recover—seven years of waiting, hoping, and delayed plans.
- COVID Crash of 2020: The pandemic sparked a 34% drop in just over a month. While the recovery was unusually swift due to massive stimulus, anyone forced to sell in March 2020 locked in steep losses. A short-term liquidity need at the wrong moment would have derailed your plan.
- 2022 Bear Market: Inflation soared, interest rates spiked, and the S&P 500 fell around 25% over the year. Bonds, which usually serve as stabilizers, also dropped due to rising rates, creating one of the worst years for balanced portfolios in decades.
- Late 2024—early 2025 Volatility: Although not a full-blown crash, 2024 brought continued economic uncertainty, political unrest, and interest rate whiplash. Markets seesawed throughout the year. Some sectors boomed while others lagged, and the unpredictability left many retirees uneasy.
These aren’t just history lessons. They’re real-world examples of why liability matching matters.
If you’re not retired yet, ask any near-retiree in 2002, 2009, or early 2020 how it felt to see 20%–50% of their portfolio disappear before they planned to retire or make a significant financial move. Many had to work longer, tighten their budgets, or radically change their plans.
That’s the risk you run when you try to time markets or use volatile assets to fund short-term needs. The averages look fine on paper, but the market doesn’t care about your timing. It doesn’t know or care that you must buy an annuity in four years or retire in fifteen.
You could be doing everything “right” and still get caught by a downturn. That’s why liability matching is so important. It gives you a margin. It gives you flexibility. And it protects your peace of mind.
So, with that, let’s go back to liability matching.
A quick refresher on duration and matching
Duration is the time it takes for an investment to repay its original cost, factoring in interest payments and price changes. Longer-duration investments are more sensitive to interest rate changes and take longer to recover from losses.
Let’s say I need $15,000 in five years. I can buy a U.S. Treasury bond that matures in exactly five years. Problem solved. I’ll have my money when I need it.
If I buy stocks instead, I might have more or less. I won’t know until I get there.
If I invest in a bond that matures in two years, I might not earn as much as a four-year bond. If I invest in one that matures in ten years, I’ll earn more—but I’ll have no idea what it will be worth in four years.
That’s the art of liability matching: pick the investment with the right duration for your needs. It’s too short, and you miss out on return. Too long, and you take on unnecessary risk.
Short-term bonds are the better match for the reader planning to buy an annuity in four years, even if they earn less than what they are now (I hold a Short Term Bond Index fund earning an SEC Yield of 4.4%). That may not beat the 8% increase from delaying Social Security, but it’s far more dependable than hoping the market gives you what you want.
For the 15-year strategy, even if you put the first five years in stocks and the last ten in bonds, you’d need something like a 13% average stock return in those early years to make the math work. And again, there’d be no guarantees you could get that, especially since it’s above the historical averages.
Take the four-wheeler
Planning for retirement isn’t just about hitting a return target. It’s about funding your life wisely, sustainably, and low on regret.
If your plan depends on squeezing out an extra 1–2% return while taking on a lot of risk, it might not be a good plan, especially if there’s a more straightforward and dependable way to get there.
As I wrote in my last article:
Don’t worry if your investment returns aren’t sky-high. Retirement is more about stability and capital preservation than aggressive growth. You need some growth to at least keep up with inflation, but sequence of returns risk can be a real issue. Therefore, a steady, moderately conservative growth and income approach is often the best. As a retiree, your primary concern is income sustainability, not chasing high investment returns. Another reason not to be too concerned is that many economists predict that stock market returns will average 5 to 7 percent for the next few decades, not the 10 to 12 percent range we’ve seen over the last 20 years. If you average 6 percent a year, you get what the market gives you.
I like to hike and used to do 4-wheeler trail riding. If I was at the top of the mountain with no water but knew I could get a cool drink at the bottom, I could hike down and get it. Or, if I had the choice, I’d take the 4-wheeler to get there faster and easier, but I’d get the same glass of water.
Complex strategies can be clever, but in my experience, clever doesn’t always win. Sometimes, they just increase the chances of making a mistake. That’s why you’ll occasionally (actually, frequently) see me write articles emphasizing simplicity and its importance in retirement stewardship. The older we get, the simpler things need to be—period, exclamation point.
Some thoughts for 2025
The last few years have reminded us that markets don’t always cooperate. From inflation shocks to interest rate swings and political instability, we’ve seen how fragile our assumptions can be.
If you’re within 5 to 10 years of retirement, now is the time to review your stock exposure. Many people had to delay retirement in 2009 because they were too exposed to stocks when the market crashed. Don’t let that happen to you.
Instead, consider transitioning from growth-focused investments to those better aligned with your future liabilities. Moderately conservative, well-diversified portfolios (50/50, 40/60, etc.), shorter-term bonds or bond funds, laddered CDs or TIPS, DIAs, and delaying Social Security are all tools that can help.
Then, if you find yourself in need of withdrawing a large sum from a portfolio that is losing value, you can reread this from that previous article:
Don’t worry if you withdraw from your investments during a down market. This is inevitable unless you stop entirely when markets are down, which many people can’t do. But this is one of the reasons why we plan and diversify. Strategies like a cash buffer or bucket system can help you manage this effectively. If you can ratchet back your withdrawals during a down market, all the better, but you still need money to live on.
And remember: our goal is not to have the perfect plan for every possible market scenario. It’s to do the best we can with the tools at our disposal to wisely steward the resources God has entrusted to us to provide for our needs and serve others faithfully. So, Let the markets do what they will and take the 4-wheeler.
