Bear markets refer to prolonged downturns in the stock markets, during which the value of many stocks (and other assets) drops significantly over the course of months or years. Retiring in a bear market can be especially challenging, as it can erode your savings and leave you with inadequate income to cover your lifestyle.

For those who are approaching retirement or are already retired, this can present a major challenge as income sources and investments may be markedly reduced during market downturns. However, there are steps that you can take to help your retirement savings weather the storm and remain secure, regardless of fluctuations in the market. 

So, what should you consider during a bear market if you are ready to enter retirement?

1. Consider your portfolio allocation

The first step towards setting yourself up for success during a bear market is to reassess how your portfolio is composed. Investors may choose to invest heavily in stocks since they often have high returns – however, this strategy can be risky during bear markets as it can lead to significant losses if not managed properly. 

What assets do well in a bear market? It’s important during market lows to diversify your portfolio across different asset classes that tend to do well in market downturns, such as bonds, cash equivalents, and commodities which may give you the opportunity to spread out your risk and potentially even benefit from some gains in certain cases. Additionally, it’s important to review your portfolio periodically so you can identify any potential risks in a timely manner, before they become an issue. 

Continue reading: Where is the safest place to put your retirement money?

2. Establish a cash cushion

In addition to diversifying your portfolio, it’s important to establish a cash cushion for your retirement savings. When the markets are down, it’s essential that you are able to access your funds quickly in order to cover any unexpected expenses or emergencies.

Having a cash cushion can help you avoid having to withdraw funds from investments that may have experienced significant losses due to the bear market. While it is generally advised not to touch principal investments during a bear market, having a cash cushion can be the difference between having to sell off investments at the wrong time and being able to wait until the markets recover before selling.

3. Utilize tax-advantaged retirement accounts

One way retirees can work to safeguard their assets during periods of economic downturn is by utilizing tax-advantaged accounts such as 401(k)s* or IRAs which can offer protection from taxation on capital gains, as well as other benefits depending on the type of account being used by the investor. 

Since taxes are typically due after money has been withdrawn from these accounts regardless of whether gains were realized while they were held within them or not, they provide a source of more predictable income without relying exclusively on volatile investments like stocks during bear markets.

If you’re an entrepreneur, this is still a strategy you can utilize as there are numerous retirement options for small businesses including SEP IRAs, SIMPLE IRAs, and Solo 401(k)s which allow you to maximize the tax savings associated with retirement planning. 

*Learn more: How to protect my 401(k) from a market crash

4. Stick to your budget

Another key factor for successful retirement planning during a bear market is proper budgeting. During times of economic uncertainty, try to not make any large purchases or investments that do not fit with your bear market financial plan. Otherwise, you run the risk of setting yourself back financially when you find yourself faced with unexpected expenses or dips in income due to investments losing value during the bear market cycle.

5. Continue investing in the stock market

One strategy that can be used to help protect retirement savings during a bear market is dollar-cost averaging. This involves regularly investing in the stock market, regardless of its current performance, meaning that you will buy more shares when prices are lower and fewer when they are higher. 

This strategy allows you to take advantage of the potential for long-term gains while reducing your overall risk exposure by avoiding investing large sums of money when markets are at their peak. Additionally, dollar-cost averaging can help to provide a steady stream of income due to the consistent returns that may be generated by regularly investing small amounts over time.

Retiring in a bear market? Prepare your retirement plan with Avidian Wealth Solutions

There are steps that those retiring in a bear market can take to help protect their retirement income from volatility in market cycles — giving you peace of mind when it comes time for retirement, no matter what the market is doing.

Partnering with Avidian Wealth Solutions is a great way to gain confidence in your retirement savings. We are a high-net-worth wealth management firm offering retirement planning in Houston and Austin. Our team of experienced financial professionals offer tailored advice customized to your individual needs, with the goal of helping clients maximize their returns while minimizing risk.

Schedule a conversation with us today to learn more about our approach to retirement planning.

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