{"id":92403,"date":"2026-04-16T01:44:43","date_gmt":"2026-04-16T06:44:43","guid":{"rendered":"https:\/\/www.bricktowntom.com\/blog\/?p=92403"},"modified":"2026-04-16T01:44:43","modified_gmt":"2026-04-16T06:44:43","slug":"retiring-in-a-bear-market","status":"publish","type":"post","link":"https:\/\/www.bricktowntom.com\/blog\/04\/retiring-in-a-bear-market.html","title":{"rendered":"Retiring In A Bear Market"},"content":{"rendered":"
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\"Retiring<\/figure>\n<\/div>\n

Oh wow, 2022 is turning out to be another crazy year. The stock market is in turmoil due to many factors. The S&P 500 index is already down over 10% and who knows where we will go from here. I suspect 2022 will be the bear year for the US stock market, but you never know. Things might improve for the rest of this year. Fortunately, a bear market is actually good for most of us because this is a great opportunity for the long-term investor. However, a bear market is bad news for one particular group of people \u2013 someone who recently retired or will be retiring soon.<\/strong><\/p>\n

*Originally written 2016, updated in 2022. I’m on a beach vacation this week. That’s the benefit for financial independence. \"\ud83d\ude09\"<\/p>\n

Studies have shown that retiring in a bear market is one of the worst things that can happen to your nest egg. This is because you have to sell some investments to fund your cost of living. Retiring in a bear market means you sell at the worst time and it\u2019s tough to come back from that initial setback. A study from T. Rowe Price showed that the first five years are the most crucial period of your retirement. After the first five years, a bear market would still hurt, but it won\u2019t impact your retirement as much.<\/p>\n

Historically, a bear market occurs about once every 3.5 years and lasts around 15 months. You\u2019re almost guaranteed to run into a bear market in the first five years of your retirement. So what can you do if there is a bear market during the first five years of your retirement?<\/p>\n

Avoid selling in a bear market<\/h2>\n

The worst time to sell your investment is when the stock market is down. One way to avoid selling is to use the bucket approach. We can divide our nest egg into 3 buckets – short, intermediate, and long term.<\/p>\n

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  1. Short term bucket – cash<\/strong>. Retirees should keep enough cash to fund one to two years of living expense. That\u2019s including social security and any other income you have in retirement. So if you spend $50,000 per year and receive $20,000 in social security benefits, then you would need to keep at least\u00a0$30,000 in accessible cash. This cash bucket will help get you through the worst of the bear market.<\/li>\n
  2. Intermediate term bucket – bonds.<\/strong> Bonds are usually much more stable than stocks in a bear market. Retirees can sell their bonds and use that income to replenish the cash bucket as needed. Another approach is to build a bond ladder. You can set up a bond ladder to mature every year with enough money to refill your cash bucket. Your bond bucket should have 3 to 5 years of living expenses. A bear market averages about 15 months, but it takes a while for the stock market to recover. <\/li>\n
  3. Long term growth bucket – stock.<\/strong>\u00a0A bear market is scary for retirees, but the stock market is great for long term growth. By setting up a cash and bond bucket, you can avoid selling in a bear market and wait for the recovery. Once the market recovers, you can sell some stocks to refill the short and intermediate term buckets.<\/li>\n<\/ol>\n

    The downside to the bucket approach is that your asset allocation will fluctuate quite a bit. Your bond allocation will drop in a bear market and you will need to rebalance when the stock market recovers. This approach also assumes that you have a good size portfolio. If your retirement portfolio is relatively light, it won’t make sense to put so much into bonds. Check your asset allocation<\/a> to see if this bucket approach will work.<\/p>\n

    Reduce withdrawal rate<\/h2>\n

    Another way to preserve your nest egg is to reduce your withdrawal rate while the stock market is down. Cutting back can be difficult, but it isn’t impossible especially if you just retired. Actually, there are quite a few things you can do.<\/p>\n