How to Weather Down Markets as a Retiree

Written By: Marissa Waldron, CFP®

Drops in the market can be panic-inducing anytime, but especially if you are retired and living off of investments. You might be concerned you don’t have time to wait for the market to rebound. This is why we stress the importance of having a long-term plan, but even when you do, if can sometimes be hard to stick to the strategy. Corrections are a normal part of investing and with a strong plan in place, you shouldn’t have to worry about the drops.

Here are some steps you can take to ensure you can weather the storms:

Importance of a Strong Plan:
- Limit withdrawals to 4-5% of your initial balance in retirement.
- Ensure essential expenses are covered by guaranteed income sources like Social Security or pensions.
- Maintain emergency savings to avoid selling investments during market downturns.
Utilize Cash Reserves First:
- Use cash savings to cover expenses during down markets instead of selling stocks, preserving your portfolio for potential recovery.
Reevaluate Social Security Timing:
- If you need cash, consider claiming Social Security benefits early and then suspending them later to allow investments to recover. However, this decision should be carefully considered, possibly with the help of a financial advisor.
Strategic and Tax-Smart Selling:
- Rebalance your portfolio to maintain the desired stock-bond ratio.
- Sell investments that no longer fit your strategy or have underperformed.
- Take advantage of tax losses to offset gains and reduce taxable income, and be mindful of the tax implications of short-term versus long-term capital gains.

You can’t control market fluctuations, but you can be strategic about how you manage your retirement portfolio during downturns. Regularly reviewing and possibly adjusting your plan with a financial professional is recommended to ensure it remains robust in both good and bad market conditions.