The Informed Investor

Retiring in a Bear Market: Things to Consider

January 2023

January 19, 2023

Economic conditions took a turn for the worse in 2022, punctuated by persistent inflation, stock market declines, and geopolitical uncertainty brought on by the war in Ukraine. Borrowing costs are surging on the back of several consecutive interest rate hikes by the Federal Reserve (Fed), making mortgages and other types of loans more expensive than they were just a year ago. Corporations are also suffering, reflected in the fact that bonds are on track for their worst performance in nearly a century.

This fraught environment has, understandably, been of particular concern to those in retirement or considering it. For younger investors, a bear market can represent an opportunity to advance their goals by acquiring assets at somewhat of a discount. But for those hoping to retire in the midst of such volatility – those who may not have as long a runway for their portfolios to recover – these conditions can prove disastrous if handled improperly. Below are a few things that might be worth considering before you step into your retirement years.

Tips for Retiring in a Bear Market

 The main risk of retiring in a tough market is that you might be making withdrawals on a declining portfolio balance. Some investors are forced to do this to cover living costs or to fulfill required minimum distributions. Many would be well-advised to avoid “selling low” and instead wait to see if the market recovers to previous highs, as it’s shown a tendency to do in the past. Whatever your individual circumstances, there are some measures you can take that may help limit the financial and emotional disruption caused by a bear market.

Analyze and Review Your Costs to Prepare for the Unexpected

 One of the most effective ways of managing less-than-ideal market conditions is also one of the simplest, and that’s budgeting. Return to the basics by analyzing your retirement expenses for the next several years. Consider approximating what you might spend per month, quarter, or year to support your desired lifestyle. This includes everything from dining to new clothing and furniture. It might also include larger expenses, such as housing and travel. Then there are costs that could arise unexpectedly, such as those associated with long-term care or losing a spouse.

Either way, reviewing your projected expenses can help you keep the bigger picture in mind. It may also inform how you handle your investments during retirement, like whether you need to sell assets to free up cash. Further, being more intentional with how you allocate your budget can go a long way.

Stick to Your Plan

 The cliche, “Stick to your plan” is uttered on financial podcasts, TV networks, and newspapers alike – and for good reason. Over time, staying the course tends to yield better results than constantly buying and selling assets.

Constructing a financial plan that aligns your investments with your long-term goals can be integral to weathering volatility. Reviewing that plan and avoiding the urge to make reactionary decisions based on short-term market movements will help keep you on track to meet the goals you’ve set.

Your investment objective, which is sometimes overlooked, is a critical aspect of any investor’s strategy. Knowing when you might need to withdraw money and for what purposes could also help provide some direction. While creating and then reviewing your plan regularly can’t guarantee results, it’s nonetheless a key component of the financial planning process.

Fortify Your Cash Reserve

 One of your principal investment decisions likely hinges on the question: How much of your portfolio should be in cash or cash equivalents? The answer will vary from investor to investor, so it’s important to consult with a financial professional who can help you determine what the most advantageous cash allocation is for you.

In general, a robust cash reserve can help insulate investors from declining stock and bond prices. Retirees don’t always have the luxury of waiting years for the market to bounce back. When you sell off assets in a down market, you may be limiting your ability to capitalize on a market rebound.

By providing yourself with a sizable cash cushion, you might not have to sell stocks, bonds, or other assets to cover your expenses. Holding cash may reduce returns as markets appreciate, but its stable value can serve as an anchor within a portfolio to limit losses amid declines. Think about maintaining at least a year’s worth of cash or cash alternatives, though this amount will vary depending on your circumstances.

 Closing Thoughts

 All of this is not to say that you should convert all of your holdings to cash, bonds, and lower-risk investments. It’s often the smaller adjustments, based on conversations with a financial advisor, that may make the most sense. In some instances, investors may regret becoming overly conservative by parking all or most of their money in cash during a bear market. As always, it is critical to understand your investment objectives and time horizon, which goes back to making a plan and sticking to it.

Other things to consider or potentially bring up with your advisor include:

  • Delaying Social Security
  • Downsizing your home or otherwise lowering lifestyle
  • Altering your tax
  • Rebalancing your investment
  • Staying in the job market, even if it’s in a reduced capacity as an advisor or part-time consultant.

No matter what market conditions you’re retiring into, resources are available to help guide you. Entering retirement in a bear market like todays can present additional challenges and considerations, but they can likely be overcome with careful planning. Consider reaching out to a financial professional to learn more about steps you can take to better weather turbulent conditions.


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