Over my 30 years of experience advising clients, one common pitfall I’ve noticed is how easy it is to follow advice meant for the masses—especially when it comes to retirement. While some financial rules of thumb are helpful, others can be downright dangerous when applied without personalization. One such piece of popular advice is to stay the course during market downturns. That may work for younger investors, but for retirees, this approach can be risky.
Retirement is one of life’s biggest transitions. You’re shifting from a steady paycheck to relying on your accumulated savings and investments—making it more important than ever to seek guidance tailored to your unique needs.
Why “Stay the Course” Isn’t Always the Best Course
Traditional investment advice often encourages staying invested during market declines, under the assumption that the market will eventually recover. While that’s generally true over the long term, it doesn’t consider the unique challenge retirees face: withdrawing funds from their portfolios to cover living expenses. This is known as Sequence of Returns Risk, and it can have a lasting impact.
Understanding Sequence of Returns Risk
This risk refers to the negative impact that poor investment returns early in retirement can have when combined with regular withdrawals. Unlike investors still contributing to their portfolios, retirees can’t afford to “wait it out.” Withdrawals made during downturns lock in losses, leaving less capital to grow when markets recover.
The “Lost Decade” Example
The 2000s offer a vivid example of why this matters. From 2000 to 2009, the S&P 500 experienced dramatic volatility, including two major bear markets—the dot-com bubble and the 2008 financial crisis. The returns during that decade looked like this:
- 2000: -10.14%
- 2001: -13.04%
- 2002: -23.37%
- 2003: +26.38%
- 2004: +8.99%
- 2005: +3.00%
- 2006: +13.62%
- 2007: +3.53%
- 2008: -38.49%
- 2009: +23.45%
Source: Macrotrends – S&P 500 Historical Annual Returns
For someone retiring at the start of that period, consecutive withdrawals in down years could have rapidly depleted their nest egg—highlighting why generic advice to “ride it out” doesn’t always fit.
Protecting Your Retirement Portfolio
So, how can retirees protect their savings during turbulent markets? Start with a personalized approach based on your specific income needs, health expectations, and lifestyle goals. Here are a few key strategies:
- Diversification: Spread investments across multiple asset classes to cushion against downturns in any single market.
- Flexible Withdrawal Plans: Adjust withdrawal amounts based on market performance. (Yes, it’s tough to cut spending—but flexibility can extend your portfolio’s life.)
- Cash Reserves: Hold some cash or short-term investments to cover 1–2 years of expenses, reducing pressure to sell during dips.
- Regular Reviews: Reassess your portfolio to ensure it still aligns with your financial goals and risk tolerance.
- Income-Producing Investments: Interest and dividends may offer more stability than price appreciation alone. If you’re living on investment income, short-term price fluctuations matter less than having dependable cash flow.
One Size Doesn’t Fit All
A sound retirement strategy isn’t about reacting to headlines—it’s about making informed, customized decisions that support your financial well-being for decades to come. If you’re nearing retirement or already there, now is the time to reevaluate your approach and make sure you’re protected from risks like Sequence of Returns.
At Retirement Care Plans, we specialize in helping individuals and couples transition into retirement with confidence. Whether you need help understanding your withdrawal strategy or want to build a portfolio designed for resilience, we’re here to guide you every step of the way.
Ready to stress-test your retirement plan? Contact us today for a personalized consultation.