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Tips for retiring into a bear market

You’re approaching that long-awaited day when you can say goodbye to full-time employment. But you’ve been listening to the dire predictions of financial pundits. Not exactly encouraging stuff. Should you continue to plug along at work and ride out the storm? Or should you retire as planned, even if the market’s headed for a significant downturn?

Tough questions. Unfortunately, there’s not a one-size-fits-all answer.

Take a deep breath. Forget about the stuff you can’t control: the stock market, interest rates, government programs, the world economy… etc. One of the biggest hazards of retiring into a declining market is “sequence of returns” risk. That’s the problem of taking withdrawals — especially early in retirement — from a portfolio that’s headed in the wrong direction. Once shares are sold, fewer shares are available to profit from future market recoveries.

Nevertheless, you can take steps to cushion the transition even when retirement accounts are performing poorly. Here are four suggestions:

  • Think about pulling funds from other assets. If you have cash in “buffer accounts,” tap those sources first. If not, consider reverse mortgage or home equity lines of credit. Both may have significant upfront costs, but establishing a line of credit early in retirement can help you defer substantial withdrawals from your retirement accounts.
  • Consider selling your house and moving. Many people find that retirement is a great time to downsize and move to a less-expensive location. Proceeds from the sale can provide enough cash to cover expenses as you wait for the market to recover.
  • Set a realistic budget. Don’t just guess what you’ll need. Do the math. Establish the habit of living within your means, before and after you leave your job.
  • Seek professional help. A financial advisor can help you map out a plan for your golden years.