{"id":50780,"date":"2022-06-14T21:12:19","date_gmt":"2022-06-14T21:12:19","guid":{"rendered":"https:\/\/harchi90.com\/retiring-into-a-bear-market-what-to-do-what-to-avoid\/"},"modified":"2022-06-14T21:12:19","modified_gmt":"2022-06-14T21:12:19","slug":"retiring-into-a-bear-market-what-to-do-what-to-avoid","status":"publish","type":"post","link":"https:\/\/harchi90.com\/retiring-into-a-bear-market-what-to-do-what-to-avoid\/","title":{"rendered":"Retiring into a bear market: What to do, what to avoid"},"content":{"rendered":"
It’s worth remembering that bear markets are not unusual or permanent. Since 1928 there have been roughly one or two a decade. They don’t always precede recessions. And they typically last less than two years. <\/div>\n

That said, retiring into a bear market can be harder on your financial well-being if you have to draw down from your portfolio before it has a chance to recover. <\/p>\n

A Vanguard study estimates that if you enter retirement during a bear market with a balanced portfolio (half stocks, half bonds) and rely on that portfolio for 100% of your income, making withdrawals when stocks are down could increase the chance you outlive your money by 31% and reduce your income stream by 11%. <\/div>\n

“Every withdrawal turns a negative return, which is temporary in nature, into a permanent impairment of the balance. The amount withdrawn at a considerable loss reduces the opportunity to recover over the long term,” the Vanguard researchers wrote. <\/p>\n

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But there are a few strategies new retirees and those nearing retirement can use to protect their nest eggs during a bear market.<\/p>\n

Bolster your liquid reserves <\/h3>\n<\/p>\n

Some planners recommend at least two to three years’ worth of income set aside in liquid assets such as cash or cash equivalents and short-term bonds to draw from during market downturns. <\/strong><\/p>\n

Certified financial planner Craig Toberman, founder of Toberman Wealth in St. Louis, recommends his clients keep a more conservative five years’ worth of income in liquid assets. <\/strong>For example, if you have a $ 1.25 million portfolio and hope to withdraw $ 50,000 a year in retirement, you’d want to keep $ 250,000 of it in liquid assets. That’s the money you would draw from during a bear market so you don’t have to sell your stocks at a loss, he said. <\/p>\n

Review and reduce your spending<\/h3>\n<\/p>\n

To bolster your cash reserves – especially if you haven’t retired yet – take a hard look at your current spending and see what can be cut.<\/p>\n

This can be an especially helpful exercise if you’re still working.<\/p>\n

“Most people can’t spend at the same level in retirement as they did when they were working,” said Rose Niang, a certified financial planner and director of financial planning at Edelman Financial Engines. “Lower your living costs now and use [the savings] to bolster your cash reserve going into retirement. “<\/p>\n

The added benefit: It may help you adjust better to life in retirement. <\/p>\n

If you’re already retired, track your current spending and distinguish which expenses are needs vs. wants. And cut back on some of the discretionary items.<\/p>\n

Reassess plans for large expenses too.<\/p>\n

“Do you need to buy that new car or can the car you have last a couple more years? Do you need to take that expensive vacation now?” Niang said. <\/p>\n

And if you haven’t already, she added, downsizing your home can reduce your expenses, too.<\/p>\n

Stay flexible<\/h3>\n<\/p>\n

Like life, retirement may not be linear or predictable, Niang said. <\/p>\n

You may change your mind about how you want to live. Or <\/strong>a medical crisis, a bear market or the birth of grandchildren may alter your financial plans.<\/p>\n

So your portfolio has to serve your goals as they evolve. And as they do, you’ll need to periodically review your drawdown strategy.<\/p>\n

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