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Questions to Ask if You’re Retiring in a Bear Market

Bear markets are never fun, but they can feel especially painful if you are about to retire. Here are five questions to ask yourself, and your financial advisor, to make sure you are prepared if you need to retire in a bear market.

If you are 65 or older, it can’t be easy to hear the news that stocks had their worst single day since the “Black Friday” market crash of 1987.

Regardless of age, the market volatility happening right now is not for the faint of heart. But for those who are about to retire or have recently retired, many are asking what to do during a bear market.

“It’s terrifying for someone to see the market going down when they are about to retire,” says Jesse Piburn, a Senior Financial Advisor located in Personal Capital’s Denver office. “We’re hearing a lot of questions from those folks asking ‘If I lose 20 percent of my portfolio, am I still able to retire?’ And if proper planning has been done, then yes absolutely you can.”

As a short-term investor hoping to live off your savings when you retire soon, it’s easy to go into panic mode when you see the Dow drop thousands of points on a given day. Here are some questions to ask yourself (and your financial advisor) during a bear market to help stay on track towards your retirement goals.

Am I properly diversified?

Diversify, diversify, diversify – we probably sound like a broken record over here, but it’s the number one thing we tell our clients when thinking about their retirement and investing plans. Having a diversified portfolio can help you reduce your risk while still optimizing your returns. You’ve all heard the phrase, “don’t place all your eggs in one basket” and it’s true for your nest egg as well.

Often times we hear during volatility investors wanting to move all of their investments to cash until the “dust settles” – and the hard part is that no one really knows when the dust has truly settled.

“If someone goes to cash during a market drop, they are essentially saying ‘I know what’s going to happen next, and I’m taking action based on that knowledge’,” says Piburn. “The reality is that nobody knows, and oftentimes people want to feel better by doing something.”

It may seem hard, but sticking to your long-term strategy, one that will mitigate some losses on the way down and will enjoy some of the gains when the next bull market begins, is the smart way to approach your portfolio strategy.

What are my spending levels?

Another safe way to recalibrate your retirement plan during a volatile time is to revisit spending goals. You might be like most people, who when asked how much they spend annually, or even monthly – the math is a bit unclear. It’s a good idea to use online tools to help you track what’s coming in and going out – this makes it easier to get a sense of what your spending levels are. Another benefit of knowing what your spending and cash flow is like is that it gives you the ability to start looking for possible cuts to make in retirement if necessary.

“One of the most difficult, but most important, pieces of advice an advisor can give is to reduce your spending levels going into retirement, says Vice President of Advisory Amin Dabit. “Lifestyle adjustments can often be more impactful than adjustments to your portfolio.”

Is my risk tolerance accurate?

Are your risk tolerance and your portfolio aligned? If so, great, no adjustments are needed. But if you are losing sleeo about the recent volatility impacting your portfolio, another way you can manage risk is by diversifying your portfolio through asset allocation – which basically means having a variety of different investment classes in your portfolio – say stocks, bond, real estate, gold, and cash. By diversifying your portfolio you are providing some insulation from those sudden dips when the market changes.

Talk to your advisor about how diversified you are within asset classes as well – putting all of your money in one tech stock would probably not be a wise investment, so it’s best to spread your money within each category.

Am I sticking to my financial plan?

The most critical factor for a comfortable retirement is having a financial plan in place. It’s the best way to make sure you are making good decisions and staying on track for a comfortable retirement. It’s also important to differentiate that staying the course does not mean ‘do nothing’ – it means doing things like sticking to a methodical rebalancing plan of buying low and selling high, tax management and tax allocation, and focusing on spending/saving goals during this volatile time.

Having a plan will also help you pinpoint the most important goals and the biggest concerns you have so you don’t get distracted by all the noise that’s out there.

“One of the main misconceptions when you retire, is that you’ll be sitting on a pile of cash that you now need to live off,” says Piburn. “I often tell clients that their portfolio still remains invested throughout their life. So downturns may cause a few shifts in their current portfolio so we can meet their long-term goals, but it shouldn’t change their plan on what’s going on in the short-term.”

Outside of your retirement portfolio, aim to have about 1 to 2 years worth of liquid accounts, such as cash or cash alternatives, so you can withdraw from those if needed without touching your portfolio.

Am I staying focused on long-term needs?

Making sure you stay in close contact with your financial advisor is also important to make sure you don’t make any sudden moves that could hurt your retirement plans. “Try to focus past near-term fears and emotions and keep the long-term financial needs and strategy in mind,” says Jeff Davis, Vice President of Advisory Sales.

“Review that strategy regularly with a fiduciary financial advisor to ensure it is properly updated given market changes,” recommends Davis.

“Volatility right now is similar to levels experienced in 2008, making long-term projections difficult,” says Dabit. “However, the retirement phase is a 20-to-30 year process. Your general financial health will likely recover as the economy does.”

Worried about the market? Download our free guide to market volatility.

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