Retiring Early? Here’s 1 Concession You May Want to Make if the Stock Market Crashes.

To retire early, you generally need a lot of savings. It’s as simple as that.

It’s a pretty dangerous thing to retire at 55 with $400,000 in your IRA or 401(k). But with $2.4 million in savings, your financial picture changes. At that point, depending on your needs, you may have enough money to sustain yourself for an extra decade beyond a typical retirement age.

But one thing you should know is that a stock market downturn at the start of an early retirement could be a recipe for disaster. So it’s important to be willing to change your plans if that happens.

The problem with a stock market crash early on

A stock market crash is never a good thing in the context of retirement. But early on, it can be especially problematic.

Let’s say you retire at 55 with $2.4 million, but the market loses 20% of its value your first year of not working. Suddenly, your portfolio value shrinks to about $1.9 million — not because you’ve withdrawn half a million dollars, but because the assets you own are worth less temporarily.

If you take large withdrawals to cover your living costs, you could make those temporary losses permanent. And that could leave you with less money for the rest of your retirement.

That’s why if you’re going to retire early, it’s important to be flexible during market crashes. That could mean reducing your spending and/or finding part-time work to ride out the storm.

Let’s say your original plan was to withdraw $85,000 a year from your nest egg to cover your living expenses. At a 3.5% withdrawal rate, that’s fairly sustainable, even for a longer retirement.

But that doesn’t mean you should stick to that plan if your portfolio loses 20% of its value. In that case, reducing your withdrawal to, say, $42,000 and making up the rest with part-time work could be your ticket to preserving your savings over time.

It’s important to be flexible

To pull off a successful early retirement, flexibility is key. That means adapting to market downturns and, if necessary, being willing to delay retirement if the market craters right before you’re scheduled to bring your career to a close.

If you forge forward with your plans regardless of market conditions, you could end up locking in permanent losses that put you at risk of running out of savings. And one thing you don’t want to do is have your early retirement be the reason the second half of your retirement is miserable.