Retire securely during market swings

Can your retirement plan withstand market volatility?

Any time the stock market dips, we hear this refrain: "Stay the course. Only fools sell when prices are low." Or this one: "Since you're saving and investing for your future, market declines are opportunities to buy at low prices."

It's not bad advice, especially when you're still working with a steady paycheck and saving for your retirement. But what if you're close to retirement, or even already there, and you need your investments to pay for retirement expenses? Is the same "buy and hold" strategy still the best advice?

Retiring during market volatility

When retired people take money out of their investments in a volatile market, it's kind of like taking a road trip through the desert with a leaking gas tank. The gas is your resource for retirement expenses, and the fuel leak is the negative market effects on your portfolio.

The bottom line: You could be stranded much earlier than expected.

How to protect yourself in a market downturn

The first thing you should do is create a retirement income plan so you're financially ready for any market conditions.

A general rule of thumb is to save enough to replace 70% to 85% of your pre-retirement gross income before you start your retirement.‍ ‍ But it's even better to have a plan tailored to your individual goals, needs and capabilities.

A good plan should model different market scenarios. For example, what would it look like if you retired during a bear market when prices are falling? What about if you retired during a volatile market, when prices are all over the place? You'll also want your plan to account for possibilities like outliving your savings, the early death of a partner or unexpected health care costs.

Life is always going to throw us curveballs, no matter what stage we're in. If you have a well-thought-out plan, you have a compass to help navigate this uncertainty.

If you're already living in retirement or nearing retirement, now's a good time to reassess your plan to ensure the right solutions are in place. This may sound like a no-brainer, but double, triple and quadruple check your retirement readiness before you give up the safety net of a regular paycheck.

5 strategies to reduce your dependency on markets during retirement

Consider using one or more of these strategies.

1. Enter retirement as debt-free as possible. Not all debt is equal, so eliminating high-interest consumer debt and keeping it paid off can help you avoid dipping into your investments during a bad market.
2. Keep an adequate, easily accessible emergency fund for unexpected expenses. Just as an emergency fund protects you from depending on high-interest credit card debt, it also serves as a cushion for poor market performance during your retirement years.
3. Review your retirement budget and eliminate nonessential expenses, if needed. Does your budget need to be resized, or are you doing good? If you do need to cut back, look to reduce things you can live without or don't use as much. How often do you actually use your RV? Would you be better served by renting one on occasion? Or maybe you don't need an expensive golf club membership, and on the occasions that you do play, you could take advantage of a municipal course. Put everything on the table, compare alternatives and keep a budget. But if you’re in good shape, you may not need to cut back.
4. Consider downsizing or relocating, if necessary. You can make your retirement savings go a lot further depending on where and how you decide to live. Consider the cost of living factors for various states Opens in a New Window.‍ ‍ Keep in mind that a big house usually comes with bigger taxes, utilities and upkeep. Relocating can be hard, but it can also be reinvigorating. Sometimes a change of scenery can be an adventure.
5. Support family and giving goals thoughtfully. Helping loved ones or causes you care about can be deeply meaningful, but it’s important to understand how those decisions fit into your overall financial picture. Taking time to evaluate what you can comfortably provide without affecting your long-term stability can help you continue to support others in a sustainable way. If you’re unsure, a financial professional can help you weigh your options and understand the trade-offs.

4 income-generating strategies

1. Keep working if you can or look for part-time work during retirement. Ask yourself why you want to quit. Is it because of the common belief that "everyone retires at 65?" There are no simple answers here because every situation is different. What's important is that you need income, and working can be a great way to postpone dipping into your retirement savings.
2. Consider whether tapping into nontraditional assets like home equity or a reverse mortgage makes sense. For people 62 and older with home equity, these options can provide a source of income, particularly during market volatility. However, they come with specific terms, costs and long-term implications, so it’s important to evaluate them carefully. Reviewing the details and consulting with a qualified professional, such as a financial advisor or attorney, can help you make an informed decision.
3. Consider dedicating a portion of your assets to more secure solutions that you can stagger over time, to help ensure they'll mature when you need the income. This could be done with financial instruments such as inflation-protected bonds, CDs or deferred fixed annuities.
4. Consider your options for a guaranteed stream of retirement income,‍ ‍ like an income annuity. Fixed-income annuities aren't tied to the stock market, and you can't outlive them, so they can be a steady source of income in retirement. However, most income annuities don't provide much protection against inflation, so they might not keep pace with increased expenses. They should be just one of the many tools in your retirement planning toolbox.

Make strategic Social Security decisions.

One of the most common retirement mistakes people make is taking their Social Security benefits too soon. In fact, nearly half of Americans take Social Security before their full retirement age.

Once you start taking Social Security, it's irrevocable, and you can leave hundreds of thousands of dollars on the table. For each year you delay benefits past your full retirement age, up to age 70, you gain approximately an 8% increase in lifetime annual benefits. That adds up quickly.

Because Social Security often serves as a primary source of guaranteed retirement income, choosing when to claim can be critical to retirement success. Single individuals or couples with long life expectancies may consider delaying their start date for benefits. On the other hand, single people or couples with short life expectancies may consider claiming their benefits earlier.

Couples with large differences in their career earnings record may want to consider a strategy in which one claims on the other spouse's benefit. Take advantage of online tools that can help you maximize your Social Security benefits.

Talk to a financial advisor to create a retirement income plan.

If you don't have a good financial plan, get one. Seek out a trusted, experienced advisor who can provide another set of eyes and ears.

If you already have a plan, revisit it to see how it performs under a range of market conditions and life events. This can help you better understand your options and how to adjust over time.

One of the best things about having a retirement income plan is that when the road gets rough, you’re less likely to have to make big, emotionally charged decisions. If necessary, you can pivot in small, thoughtful measures, all according to your plan.