Retired During a Market Downturn: How to Stay on Track
June 6, 2025
When you're years away from retirement, market dips may seem more like opportunities than threats. You're still in accumulation mode—able to buy stocks at lower prices and wait out the volatility. But once you're retired and relying on your savings for income, a falling market can feel much more unsettling. You may worry that your nest egg won’t last, especially if a recovery seems far off.
That’s why having a well-constructed retirement income strategy is so important. But even the best plans can be hard to stick with when headlines are grim and your portfolio is shrinking. Still, the right approach can provide both financial resilience and peace of mind—even during market turbulence.
“Retirees often feel the sting of market volatility more acutely, particularly when they’re drawing income from their investments,” says Ann Dowd, CFP®, of Fidelity Investments. “But we’ve seen markets recover time and again. The key is to have a plan that can weather both the highs and the lows. If you don’t have one—or if your current strategy feels out of sync—it’s a smart time to consult with a financial advisor.”
Below are four practical strategies to help you navigate down markets in retirement and avoid making panic-driven decisions.
1. Build—or Revisit—a Strong Withdrawal Strategy
One of the most important parts of retirement planning is deciding how much you can take out each year. This helps you avoid running out of savings too quickly.
A common starting point is a 4% to 5% annual withdrawal rate. This is based on your portfolio's value at the start of retirement. You should also adjust for inflation.
Your income plan should also segment your expenses into "essential" and "discretionary" categories. Essential costs—like housing, groceries, insurance, and healthcare—should ideally be covered by guaranteed income sources such as Social Security, pensions, or annuities. Discretionary expenses, including travel and entertainment, can be more flexible, allowing you to scale back if markets dip.
Incorporating an emergency fund is equally important. Having accessible cash for unexpected needs means you're less likely to tap investment accounts at inopportune times.
2. Use Cash Reserves Before Tapping Investments
During a market downturn, consider leaning on cash reserves before selling off investments. Keeping a cash cushion of 6 to 12 months' worth of expenses can help. It gives your investment portfolio time to recover before you need to take money out.
Selling stocks in a down market locks in losses. It can also change your asset allocation from your planned strategy. That misalignment can reduce your future growth potential and impair your long-term financial health.
3. Rethink Your Social Security Timing (If You Haven’t Claimed Yet)
Social Security is often a central piece of retirement income. Many people delay benefits to get bigger monthly checks. However, market downturns might make you rethink your claiming strategy.
If you can claim Social Security but haven’t yet, now is a good time. This may help you avoid selling investments at low prices.
You might think about a hybrid approach. You can claim benefits now and suspend them later. This can be done after you reach full retirement age but before age 70. This way, your monthly benefit can grow again.
However, this decision involves trade-offs. Claiming early means locking in a lower benefit, even if you suspend later. Weigh the pros and cons with the help of a financial advisor before acting.
4. Sell Assets Strategically and Tax-Efficiently
If you need to raise funds during a downturn, be thoughtful about what you sell. Start by evaluating your asset allocation. If stocks have underperformed and your portfolio is now heavier in bonds, you might choose to sell bonds to rebalance back toward your target allocation.
Use this time to clean house. Selling investments that no longer align with your goals or whose fundamentals have changed can help position your portfolio for the future.
Additionally, look for opportunities to harvest tax losses. Selling securities at a loss can offset capital gains and reduce your taxable income by up to $3,000 annually. Just be mindful of the wash-sale rule, which can nullify the tax benefit if you repurchase the same security within 30 days.
Don’t forget about capital gains taxes. Holding an asset for more than a year qualifies you for long-term capital gains rates, which are generally more favorable than short-term rates. Factoring in tax implications alongside investment strategy can make a meaningful difference over time.
Stay Focused on the Big Picture
Market volatility is inevitable, but it doesn’t have to derail your retirement. With a well-designed income plan, enough liquidity, and a thoughtful withdrawal strategy, you can navigate even rough financial waters.
If you’re unsure about your current plan—or don’t have one—it’s a good time to speak with a financial advisor. Having a partner to help evaluate your options and stay disciplined through downturns can make all the difference in maintaining financial security throughout retirement.
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Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.