Retiring During a Bear Market

Dealing with market volatility is much easier while you are working, but it’s a lot more stressful if you are planning for retirement. You most likely don’t have the option to wait a few years to begin stock withdrawal if you are getting close to retirement. Knowing how to survive a bear market in retirement is essential to avoiding costly mistakes while providing peace of mind. Trying to navigate all of these challenges on your own can be nearly impossible, which is why working with a financial advisor is a good idea.

What is a Bear Market?

A bear market is often defined as a decrease in securities of at least 20% or greater from recent highs. Bear markets are primarily associated with sharp declines in the stock market, but commodities and individual securities can also experience a bear market. On average, bear markets happen roughly every four years and eight months. Making sure you have more than enough liquid assets to handle market volatility is vital. Working with a financial advisor is also critical in helping you navigate the challenges of a bear market while planning for retirement.

How Do Bear Markets Happen?

A bear market can occur due to a variety of reasons. Bare markets’ most common causes include rising interest rates, adverse world events, a sluggish economy, or a bursting market bubble. Typically, a bear market can last over a year, but it often takes three to four years for the market to recover. Maintaining a balanced stock portfolio while avoiding the temptation to panic is key to navigating the challenges of a bear market.

How You Can Survive a Bear Market in Retirement

Knowing how to survive a bear market is essential while planning for retirement. Fortunately, you can do numerous things to limit market volatility on your 401k and Roth IRA accounts. Including a mix of stocks and bonds is often recommended as you get closer to retirement. Transferring your money out of the stock market into bonds or cash reserves can help you manage a bear market in retirement. A financial advisor can help you throughout this process to ensure you have enough liquid assets while planning for retirement.

You can also do other things if you haven’t already begun transferring your money out of the stock market. For example, you can sell off portions of your bond portfolio, as bonds are usually higher during a bear market. However, discussing your options with a financial advisor to determine your risk tolerance is a good idea. Delaying retirement is another option if you need more time to balance your stock portfolio. Working longer will boost your monthly Social Security payments and help you avoid selling your stocks while prices are down.

Additional Things to Consider

Avoiding the temptation of stock withdrawal amid a bear market is critical unless you don’t have any other choices. For example, if your stock funds are already down 15 percent, and you withdraw 5 percent, your account will be down by 20 percent, making everything even worse. Finding ways to reduce spending or sell your life insurance policy helps provide you with liquid assets. Looking at other options is essential to limiting losses to your 401k and Roth IRA accounts.

Financial advisors often recommend creating a “bucket” plan, as this allows you to put your investments in three buckets. These buckets include cash reserves, moderate-risk investments (bonds), and high-risk investments (stock funds). You can use more liquid assets during market volatility, as this is better than selling stock during a bear market. Finding ways to reduce spending is also helpful in dealing with a bear market, as you may even want to downsize your home for additional savings.

Final Thoughts

Planning for retirement during a bear market is stressful. Understanding how to avoid mistakes while protecting your investment during these challenging times is a necessity. Using liquid assets, reducing spending, and balancing your portfolio with a mix of stocks and bonds is critical if you are nearing retirement. You may even want to sell your life insurance policy to gain additional funds. Ultimately, discussing all of your different options with a financial advisor can help you make the best decision while planning for retirement.