Nobody knows when the next major market decline will occur.
It could happen tomorrow... It could happen next year.... It could happen years from now...
But if you're approaching retirement, there's a more useful question than trying to predict it:
"What happens to your retirement income if a bad market arrives at the worst possible time?"
During your working years, market downturns can be frustrating. But if you're still earning a paycheck and contributing to your accounts, you may have years before you need to rely on those investments.
Retirement changes that.
Now you may be withdrawing money while the market is declining.
That's why a retirement income plan should be designed for more than good markets.
The Problem With Selling When Markets Are Down
Imagine you're retired and need $6,000 per month to support your lifestyle.
Social Security covers part of it, but your investment portfolio needs to provide the rest.
Then markets decline.
Your income needs don't necessarily decline with them.
The mortgage or property taxes are still due.
You still buy groceries.
You may still want to travel.
Healthcare costs don't disappear.
If you have no other source available, you may need to sell investments after they've fallen to generate the same income.
That can create a challenge.
The more shares you sell at depressed values, the fewer shares remain to potentially benefit from a future recovery.
This is one reason the order in which investment returns occur can matter once withdrawals begin.
A Retirement Strategy Needs More Than Growth
Growth matters.
A retirement that lasts several decades may still require substantial exposure to assets capable of keeping pace with inflation.
But growth is only one job your retirement assets may need to perform.
You may also need:
- Liquidity for unexpected expenses.
- Income for everyday spending.
- Stability during periods of market volatility.
- Growth potential for expenses many years into the future.
Trying to make every dollar accomplish all four goals can be difficult.
Instead, some retirement strategies assign different jobs to different portions of the portfolio.
Consider Where Your Next Several Years of Income Will Come From
One important retirement-planning question is:
"If markets declined significantly tomorrow, would I need to sell investments to fund next month's expenses?"
If the answer is yes, you may want to examine how your retirement income is structured.
Potential income sources could include Social Security, pensions, cash reserves, bonds, dividends, investment withdrawals and certain insurance products.
Some retirees may also consider allocating a portion of their assets to an annuity designed to provide income under the terms of the contract.
Certain annuity guarantees can reduce dependence on investment withdrawals for a portion of retirement spending. However, those guarantees are backed by the claims-paying ability of the issuing insurer, and annuities may involve costs, surrender charges, liquidity limitations and other restrictions.
The goal isn't necessarily to replace investments.
It's to determine whether every dollar of your retirement paycheck should depend on what the market is doing that month.
Flexibility Can Be One of Your Greatest Assets
A strong retirement income plan doesn't necessarily rely on one rigid withdrawal percentage every year regardless of circumstances.
There may be years when it makes sense to take less from investments.
There may be years when another income source can shoulder more of the burden.
There may also be opportunities to delay major purchases, adjust discretionary spending or rebalance assets.
The greater the flexibility within your plan, the more choices you may have when markets become difficult.
Don't Forget About the Recovery
There is another side to this equation.
A strategy designed entirely around avoiding losses may create a different problem: insufficient growth.
Retirement can last a long time, and inflation can slowly erode purchasing power.
That's why preparing for a bad market doesn't necessarily mean abandoning the market.
Instead, the goal may be to create an income structure that gives long-term investments more opportunity to remain invested through difficult periods.
Stress-Test Your Retirement Before the Market Does
You can't control what the market will do.
But you can ask better questions before retirement begins:
- What happens if stocks fall shortly after I retire?
- Where will my monthly income come from?
- How much money do I have available without selling long-term investments?
- Which expenses are essential and which are flexible?
- How much of my retirement income is predictable?
- How much growth do I still need?
- And how would my strategy change if a downturn lasted longer than expected?
A retirement plan shouldn't require perfect markets to succeed.
It should be built with the understanding that difficult markets are possible—and that retirement income still needs to continue when they arrive.
What's Next?
If you’re curious what your retirement actually looks like month‑to‑month, I’m happy to walk through it with you. No cost. No pressure. Just a straightforward conversation to see how income, expenses, and risk line up in real life, not just on paper. Schedule a phone or video call HERE.
Not quite ready to meet? I've created some guides you might find interesting. You can learn more and download them at the links below:
To your retirement,
Ben Harvey, RICP®
Annuities are best suited for long term investors. Some features may be available only by the purchase of a rider, an optional addition to an annuity or life insurance policy that is available for an additional fee. Withdrawals prior to age 59 1/2 may be subject to an additional 10% tax penalty. Surrender charges may apply. Guarantees are provided by the claims-paying ability of the underlying insurance company. Investing carries an inherent element of risk and it is possible to lose money. Past performance does not guarantee future results.
