This week, I’m talking about how to keep calm in a bear market.

Today, I’m talking about what to do if you plan to retire this year and how to handle a recession and a bear market in the early years of retirement. Even if you are still years from retirement, a recession and a bear market can hit anytime, so it’s important to have a back up plan.

One of the most challenging things about planning for retirement with clients is that a recession that hits in the first couple of years of retirement can be devastating and drastically change your plans for retirement. If you think about it, it makes sense, because a nest egg that was just cut by 15, 20, 25% or more right at the beginning of retirement now gives you a smaller amount to live off of. If you’re simultaneously taking money out of your portfolio, you’re drawing down the balance even faster and making the problem worse, so we need to be careful and have a plan B so we can delay retirement or not take money out of your portfolio during a bear market in the early retirement years. 

So let’s talk about a few plan B options. The best plan B option, is continuing to work. It’s ideal for a lot of reasons. By continuing to work, you delay tapping into your retirement funds and your social security benefits for income, allowing both to continue to stabilize and potentially grow. Also, by delaying retirement for 1-3 years, that’s 1-3 less years that you are relying on your portfolio in retirement, and every day, month, and year counts. 

In fact, if you’re behind on saving for retirement, and your health allows you to continue working, a willingness to work longer is one of the best ways to close your retirement gap. It’s way more effective than saving more in the last 5-10 years before retirement. 

If you can’t or you’re unwilling to continue working, you may want to consider cutting back on your spending or taking on a part-time job, so you won’t be exacerbating the negative returns by taking money out of your portfolio as well. 

Lastly, consider building up a stockpile of cash before retirement. If you can build up 12-18 months worth of expenses in cash or short-term bonds that’s earmarked for withdrawals and separate from your retirement portfolio to get you through a tough time, you’ll be able to survive most bear markets without tapping into your retirement portfolio for withdrawals. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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