Can the Stock Market Retire You Early?
What a Strong Stock Market Can (and Can’t) Tell You About Retirement Readiness
It’s been a volatile year for investors, but if you only looked at where the market stands today, you might not know it.
The year began with a sharp bout of anxiety. Remember all the questions around whether artificial intelligence would create as many winners as expected? Some worried AI would disrupt traditional software and enterprise technology companies faster than those businesses could adapt. At the same time, rising energy prices linked to conflict in the Middle East pushed inflation higher and reduced expectations for Federal Reserve rate cuts.
Markets stumbled. Headlines grew darker. Investors questioned whether the rally of recent years had finally run its course.
Then came the rebound.
As energy prices stabilized and fears around AI spending moderated, the bulls returned to the market. Large technology and infrastructure companies reported solid results, indicating that the AI build-out may remain a powerful long-term trend rather than a short-lived bubble.
More recently, strong corporate earnings pushed indexes to new all-time highs. Despite concerns about valuations, geopolitical uncertainty and inflation, businesses have continued to grow profits at a healthy pace.
To the extent that they participated in the market’s rise, investor portfolios could be worth more than they were eight months ago.
And for some investors in their 50s and early 60s, that raises an interesting question: Can you retire sooner than you planned?
It’s a tempting thought. But before you draft your resignation letter, it’s worth remembering that a larger portfolio is only one piece of a much bigger retirement puzzle.
Retirement Is About Cash Flow, Not Just Net Worth
Many people think about retirement as reaching a number. Three million dollars. Five million dollars. Or maybe $10 million or more.
But retirement doesn’t happen because you hit a specific account balance. Retirement begins when your assets can reliably support your lifestyle for decades.
A strong stock market can improve the odds. However, early retirement introduces challenges that don’t exist when retiring at a more traditional age.
For example, retiring at 55 is dramatically different from retiring at 65. That’s an extra decade of spending that your assets may need to support. It’s also five to 10 or more years before several important retirement income sources like Social Security, IRAs and 401(k)s become available.
A better question might be: How will you generate income between now and age 65, 67 or even 70?
Where Will the Money Come From?
Early retirees may discover they have plenty of assets on paper but fewer sources of accessible income than expected. This is frequently the case for individuals whose wealth is concentrated in retirement accounts.
Many investors hold a significant portion of their retirement savings inside IRAs, 401(k)s and other tax-deferred vehicles. While several strategies can provide access to those funds, early retirement requires careful planning around withdrawals, taxes and potential penalties. The real challenge is bridging the gap.
- Will taxable investment accounts provide enough flexibility?
- Do stock options, deferred compensation arrangements or business-sale proceeds create additional resources?
- What will supplement living expenses until Social Security begins?
For families considering early retirement, designing an income strategy often becomes more important than maximizing investment returns. Your portfolio no longer exists solely to grow wealth. It now needs to generate income.
That’s how retirement changes the cash flow equation. During working years, income funds expenses and savings. In retirement, income plus portfolio withdrawals fund expenses. That transition can feel simple mathematically but far different emotionally.
Health Care May Be the Biggest Wild Card
For many prospective retirees, health care is the issue that turns a confident retirement projection into a more cautious conversation.
Most people become eligible for Medicare at age 65. If retirement begins at age 55, 58 or 60, you need to cover that gap.
Depending on your situation, options may include employer-sponsored retiree coverage, COBRA, private insurance or marketplace plans. Costs vary significantly and often increase as retirement lengthens.
And expenses don’t stop once Medicare begins.
According to the Employee Benefit Research Institute, a healthy 65-year-old couple retiring in 2025 would need approximately $405,000 to have a 90% chance of covering health care costs throughout retirement. If prescription drug expenses rise significantly, estimates increase further.
Some people underestimate this expense because the costs accumulate gradually over time.
The Risk Nobody Sees Coming
One of the greatest risks of early retirement often appears right after a strong market rally.
Imagine how you might feel immediately after a period of significant returns. Your portfolio may be at an all-time high. Retirement suddenly seems attainable.
Then a bear market arrives.
That’s where sequence of returns risk enters the picture. Poor market performance early in retirement can have a disproportionate impact on long-term outcomes because withdrawals continue while portfolio values decline. Selling investments during market downturns permanently reduces the pool of assets available for future recovery.
The timing of returns can matter just as much as the returns themselves.
A strong market may create the opportunity to retire early. But it shouldn’t eliminate the need for stress testing, contingency planning and adequate reserves.
What About Social Security?
Many early retirees plan to claim Social Security as soon as they’re eligible. Sometimes that makes sense. Often it deserves a more careful analysis.
For many households, Social Security represents one of the few sources of guaranteed lifetime income that adjusts for inflation. The decision to claim at 62, full retirement age or 70 can create meaningful differences in lifetime income, particularly for couples with survivor benefits in play.
Retiring early does not necessarily mean claiming early.
In fact, one of the most important planning opportunities many retirees have is coordinating portfolio withdrawals and Social Security timing to maximize long-term flexibility.
A Different Question for Current Retirees
For many readers of this newsletter, retirement is already well underway. The recent market rally may not change your retirement date, but it does give you an opportunity to revisit your plan.
- Have your spending habits changed?
- Has your appetite for risk changed?
- Does your current allocation still reflect your goals, your family circumstances and the stage of retirement you’re in?
Retirement often unfolds in phases. The spending patterns, priorities and risks you encounter at age 65 can look very different from those you face at 75 or 85. Strong markets often create opportunities to rebalance, improve liquidity or revisit long-term plans. Think beyond yourself and potentially about your children and grandchildren as well.
The Real Question
A rising portfolio balance can make retirement possible sooner than expected. But retirement readiness is about far more than investment returns. It’s about income sources, taxes, health care, withdrawal strategies, longevity and how all those pieces fit together over what may be a 25- or 30-year retirement. A healthy couple retiring in their early 60s has a meaningful chance of one spouse living into their 90s.
The market may have moved your retirement date forward. The real question is whether the rest of your plan moved forward with it.
If recent gains have you wondering whether work is still necessary, or whether your current retirement plan remains optimized for today’s reality, your RWA advisory team would be happy to help you think it through. The answer may be yes. But before you make a decision, it’s worth ensuring the numbers can support the life you want to build.
Our Latest Media
In his August market update, Chief Investment Officer Joseph “JP” Powers focuses on two market themes: how the AI hyperscalers are growing their cash balances even as spending outpaces their generation of free cash flow, and what is happening in the bond market. JP examines how recent U.S. Treasury Department moves seek to mimic the Federal Reserve’s 2011 Operation Twist to keep long-term bond yields under control, pointing out the similarities and some major differences. He also notes how the rising U.S. deficit, along with the evolution of the AI trade, could affect markets in the months ahead. Watch now!
Tax Deadlines and Distribution Season Are Approaching. Are You Ready?
Year-End Tax Planning
The waning summer season marks a return to busier fall schedules, and at RWA, we’re ramping up our year-end planning efforts. While we view tax planning as a year-round activity, the remaining months of 2026 offer the opportunity to make adjustments before distribution season and December deadlines.
After several strong years for stocks, many taxable accounts are likely to carry a bill that hasn’t come due. What you owe depends in part on when and how it’s paid. Let’s look at a few scenarios and some of the options available.
What a Strong Run Leaves Behind
Extended gains can change a portfolio as much as a trade, just over a longer timeline.
Allocations drift toward whatever has performed best, so an investor drawing retirement income may hold more equity exposure than the plan called for. Winning positions grow larger and laggards smaller.
That concentration can be masked, depending on how your portfolio is structured. A long-held position, an inherited holding or shares from a former employer may overlap with mutual fund or ETF holdings, which means an investor who feels diversified could be leaning on the same companies in more than one place.
Correcting this typically requires trading, and selling now may carry a higher cost than it would have a few years ago. It’s the paradox of a growing portfolio: Gains can lift your spirits, but the tax bill that comes with them can be painful to pay.
How You Sell Matters
Which shares you sell is a choice, though many investors may not realize it.
Accounts often default to selling the oldest shares first, and those tend to carry the lowest cost basis and the largest gain. Identifying specific tax lots and selling higher-basis shares can reduce the tax owed on the same dollar amount of proceeds. This factors into our decision-making when we trim client positions throughout the year, but investors going it alone may miss this subtlety.
Losses are worth hunting for, too. Individual holdings within a diversified taxable portfolio can be down even when the index is up, and you may still have unused capital loss carryforwards from earlier years. (Trading within tax-deferred accounts like IRAs and 401(k)s does not generate short- or long-term capital gains.)
Mind the Wash-Sale Rule
The wash-sale rule is an easy one to run afoul of if you’re looking to harvest losses or avoid taxable distributions toward the end of the year.
A loss is disallowed if you buy the same or a substantially identical security within 30 days before or after the sale. That’s a 61-day window, not a month afterward, and it applies across accounts, including a spouse’s.
This mistake could create tax headaches instead of a lower tax bill. Automatically reinvesting dividends into a fund or stock is a common way to violate the wash-sale rule by accident.
When To Take Gains, and When To Leave Them
Whether to realize a gain often has less to do with the position than with the year you’re in.
The stretch after employment ends but before required minimum distributions begin gives many retirees more control over taxable income than they will have at any other point. That control can make a given year a good one to realize gains. But the room in any year is finite, and other options, like a Roth conversion, might be better in tune with your long-term plans.
There is also a case for patience. Appreciated assets held for life currently pass to heirs with a stepped-up basis, meaning the gain may never be taxed. For someone who doesn’t need the proceeds and intends to leave the position to family, holding can be the most tax-efficient path—provided the estate plan assumes it and the concentration risk is tolerable in the meantime.
Spreading the Liability Across Two Years
If you do need to rebalance a position, but it carries a large unrealized gain, there’s often no reason to take it all at once.
Selling part in December and the rest after the calendar turns divides the liability across two tax years. That can keep income below triggering thresholds, such as the point above which the additional net investment income tax applies, the level where a higher capital gains rate goes into effect, or hitting a level that raises your Medicare premium surcharges when they’re set two years later.
For large positions with low basis, other approaches may allow for diversification without triggering the full gain at once. Those are worth a conversation with your advisory team.
Giving Shares Instead of Cash
Charitable giving is one strategy that can help reduce tax exposure for positions with large gains.
Donating appreciated shares rather than cash results in two things: The gain is never realized, and the deduction is generally full market value, subject to applicable limits. It also reduces a concentrated position without a taxable sale.
Two rules changed for 2026. Investors who itemize may deduct only the portion of their giving that exceeds 0.5% of their contribution base, which for most taxpayers is the same as adjusted gross income. The benefit of itemized deductions is also now limited to 35 cents per dollar across all itemized deductions for those in the top bracket. Both rules favor concentrating several years of intended giving into a single year.
For anyone 70 ½ or older, a qualified charitable distribution from an IRA is excluded from income and isn’t subject to that floor.
If this option appeals to you, note that transferring securities to a charity or donor-advised fund can take weeks, and sponsors often set deadlines ahead of Dec. 31.
The Hidden Tax in Some Mutual Fund Positions
Mutual funds distribute realized capital gains to shareholders in November and December. You can owe tax on these distributions even without a triggering sale, and buying into a fund shortly before the record date can mean inheriting a tax bill for gains you had no part in earning. This is why our team checks distribution estimates before adding to fund positions for clients late in the year.
Tax Planning Is Year-Round, Not Seasonal
The items above are framed around year-end because that’s when many of the deadlines fall. The thinking behind them isn’t seasonal.
Cost basis, holding periods, bracket capacity and the tax consequence of a withdrawal are factors our teams weigh as trades are placed and distributions are made throughout the year. It’s our goal to reduce your tax burden when possible within the context of your wealth plan, no matter when we act.
That’s why our advisors, client officers and portfolio managers work alongside our in-house tax team, modeling these decisions against your portfolio and your long-term plan rather than treating tax as something reconciled each spring. Being able to review a prior-year return can help, as it allows us to search for carryforwards, filing status, income patterns and charitable history that shape which strategies may apply.
If you’d like to review your taxable holdings before year-end options narrow, your RWA team is here to help.
A Conversation With Karen Schmid: Making the Most of a Liquidity Event
Wealth Creation Can Change Your Financial Picture Overnight. What Comes Next?
We’re in the middle of one of the most significant periods of wealth creation in recent history. Across technology, fintech, life sciences and other high-growth industries, employers, founders and business owners are experiencing liquidity events through IPOs, acquisitions and business sales.
Karen Schmid, managing director Family Office San Francisco, has seen this phenomenon unfold in real time through her work with individuals and families navigating these transitions. We asked her about what happens when wealth arrives suddenly, the mistakes people make, and how thoughtful planning can help turn a windfall into a long-term opportunity for both younger workers and more established entrepreneurs.
Karen, let’s start with the basics. What is a liquidity event, and who might experience one?
A liquidity event is when an illiquid asset suddenly turns into cash or can be easily converted to cash. Liquidity events can look very different. You might have an early employee at a pre-IPO company whose compensation is heavily tied to stock, or you might have an entrepreneur who has spent 20 or 30 years building a business and finally sells it.
I recently had a client who sold a company he’d built over decades for tens of millions of dollars. That’s obviously a very different experience from someone in their late 20s, 30s or early 40s who suddenly finds themselves participating in a successful IPO.
What they have in common is the emotional side. There’s excitement, validation and sometimes relief. And then, almost immediately, the questions start: “What do I do? How do I manage this? What are my choices? What do I need to do right away?”
These are typically very successful people. They’re doers. Their instinct is to make decisions quickly, and sometimes the hardest thing for them to do is slow down.
When someone comes into significant wealth, which decisions should they focus on immediately and which can wait?
One of the most important things is to surround yourself with the right team. You need strong tax professionals, estate planning attorneys, insurance specialists and financial advisors who are communicating with one another.
You have to ask questions like: “What tax strategies should I be thinking about now? Do I have an estate plan? Do existing documents need to be updated? Do I need additional insurance to protect all my assets now?” It is amazing how many people who suddenly walk into a big windfall don’t even have a will.
From an investment standpoint, the first priority isn’t maximizing returns. It’s protecting what you just accumulated. I generally encourage people not to make major investment decisions immediately. Put the money somewhere safe, take a breath and give yourself time to build a long-term plan.
It is important to be aware that there’s a fine line between doing nothing and doing too much. People often don’t realize that doing nothing is a decision, but it is. At the same time, moving too quickly can lead to costly mistakes. The goal is to find the right balance.
What are some of the mistakes you see people make after a liquidity event?
A common one is making major lifestyle decisions too quickly.
People sometimes feel an urge to prove they’ve made it. That can show up as a vacation home, a luxury car, or a purchase that looks exciting and meaningful in the moment but that comes with significant ongoing expenses and commitments. Sometimes certain purchases become status symbols.
There is nothing wrong with enjoying success. People should celebrate their success. They worked hard to achieve it! The key is to be intentional and make decisions that align with your values and your long-term goals.
I encourage people to think of a liquidity event not as the finish line but as the foundation for what is next for years to come. When you think about it that way, the focus shifts from reacting to planning.
You mentioned planning several times. Is there anything people should be doing before a liquidity event happens?
Absolutely. Some of the most valuable work happens before the liquidity event ever takes place.
A business sale after 25 years of building a company is not a sudden event. Even someone working at a pre-IPO company often has time to prepare.
That preparation can include tax planning, direct indexing strategies, estate planning, trust structures, insurance reviews and making sure you have the right advisors in place.
The reality is that what matters most isn’t what you make; it’s what you keep. That’s particularly important in California, where taxes can significantly impact the outcome.
Let’s talk about younger people who find themselves in this situation. How do you help someone who is earlier in their career handle a sudden jump in wealth?
I try to frame it as a foundation for the future.
This kind of wealth creates opportunity, but it also creates responsibility.
That doesn’t mean you can’t go out and buy a nice new car. It just means think carefully. Should you really buy the Ferrari?
For many people, especially in technology and other fast-growing industries, we are seeing individuals experience liquidity events early in their careers. For younger clients, this is not the last chapter. This event is maybe the end of the first chapter, but there may be many more chapters ahead. The goal is to structure things in a way that gives them more choices going forward.
When you say younger clients, what age range are you talking about?
Often people are in their 20s, 30s and early 40s.
That is why I encourage clients to spend time thinking about who they are, what matters to them and what they want this money to accomplish. Sometimes they struggle with questions involving friends and family. Should they help? How much? Where should boundaries be?
People often assume wealth planning is just about numbers when it’s really about values, relationships, opportunities and sometimes guilt. Money is emotional and that’s perfectly normal.
How do you help clients define those values?
One thing I talk about is conscious spending.
I like to separate wants from needs. Just because you have money to buy something doesn’t mean you should buy it today.
At the same time, it isn’t all about delayed gratification. You should celebrate success. Maybe it’s about taking a trip you have always dreamed of, or maybe it’s a new car. Maybe it’s creating experiences with family or friends that you will remember for years to come. I also encourage people to think about their communities. We’ve helped clients establish donor-advised funds and charitable foundations so they can support causes that are important to them. When charitable giving aligns with someone’s values, it can be incredibly rewarding. It can also be very effective from a planning and tax perspective.
If someone has always supported causes that are important to them, a liquidity event may allow them to support those causes in a much bigger way and make it a part of their legacy.
Another issue we see frequently is large investments in individual stocks—what we call concentrated stock positions. What are the risks there?
Concentrated stock is one of the biggest risks we encounter.
If you have your entire net worth tied to one company, that’s too much! Even if you believe the stock is going to do great in the long run, it’s still a significant amount of risk.
I often say I’d like a portfolio to be structured so that if one stock blows up, it’s not going to make you poor.
The challenge is that people are often emotionally attached to the company that created their wealth. Maybe they built it. Maybe they’ve worked there for years. They believe in the business, so there’s often a reluctance to reduce the size of their holdings.
Fortunately, there are different strategies that can help reduce risk and reduce the impact of taxes as we unwind the position and make it a more manageable size within a portfolio.
Charitable planning can also play a role in diversifying a concentrated stock position. If someone has highly appreciated stock, donating those shares directly to a charity, donor-advised fund or private foundation can be much more efficient than donating cash.
As I often tell clients, cash is the most expensive gift you can give. Donating appreciated securities is the same as cash to charities but may have more benefits for you.
Let’s shift to entrepreneurs who sell a business after decades of work. What conversations do you have with them?
One of the biggest questions is always: “What’s next?”
I don’t really believe in retirement. I think more about the next act.
Some people want to become angel investors or start another business. Others want to spend more time with family. And others want to become more involved in philanthropy or explore interests they never had time for before.
The financial side of planning should support those goals.
You’ve mentioned the importance of a team in this conversation. What role does an advisor play that clients might not expect?
I think of the advisor as the quarterback, or sometimes the CFO, for the client.
As an advisor, my role extends well beyond investments. It’s about coordinating tax advisors, estate attorneys, insurance professionals and other specialists so everyone is working toward the same objective.
I don’t have to be the expert in every area. My responsibility is making sure information flows freely among the experts so the client benefits from the best thinking available.
I also become a gatekeeper at times.
After a major liquidity event, people constantly approach with investment ideas, business opportunities and requests. Suddenly everyone has a great opportunity. Having a trusted advisor can help clients evaluate those opportunities more objectively and can relieve a lot of pressure.
Ultimately, it comes down to trust, communication and helping clients make informed decisions.
If there’s one thing you’d want people to remember about navigating a liquidity event, what would it be?
Take a breath and take the long-term approach.
Don’t focus on maximizing immediate investment returns. Slow down and focus first on protecting what you’ve built.
Take the time to prioritize what needs to happen now, whether that’s tax planning, estate planning or developing an investment strategy.
Don’t let anxiety rush you into decisions, but don’t become paralyzed either.
The best plans usually aren’t the most complicated. They’re the ones that reflect your goals, your family and the future you want to create.
And remember one size doesn’t fit all. The right plan is the one that’s right for you.
Thank you for your time and insights, Karen!
The information in this communication is presented by RWA Wealth Partners, LLC (“RWA”). The contents are for informational and educational purposes only and are not intended as investment, legal or tax advice. Please consult with your investment, legal or tax advisor concerning any specific questions you may have. Past results are not indicative of future performance. The historical return of markets generally and of individual asset classes or individual securities may not be an accurate predictor of future returns of those markets, asset classes or individual securities. RWA does not guarantee the accuracy and completeness of any sourced data in this communication.
The information set forth in this communication is presented by RWA Wealth Partners, LLC (“RWA Wealth Partners”). The contents are for informational and educational purposes only and are not intended as investment, legal or tax advice. Please consult with your investment, legal or tax advisor concerning any specific questions you may have. Past results are not indicative of future performance. The historical return of markets generally and of individual asset classes or individual securities may not be an accurate predictor of future returns of those markets, asset classes or individual securities. RWA Wealth Partners does not guarantee the accuracy and completeness of any sourced data in this communication.
By providing your email address you consent to receive marketing content from RWA Wealth Partners, LLC.