New and soon-to-be retirees face a major risk: market downturns early in retirement can reduce the longevity of their savings, a concept known as the “sequence-of-returns risk.” To help protect their portfolios, experts advise a combination of flexibility, planning, and strategy.
1. Adjust Spending Early
Cutting back spending during or after market declines can preserve your portfolio’s ability to recover. Avoid automatic inflation increases after a downturn to help make your savings last over 30 years.
2. Spend Safely
Draw income from safer assets like cash or bonds during downturns rather than selling stocks at a loss. Reinvesting dividends or interest into undervalued securities can also support long-term growth.
3. Delay Social Security Wisely
Delaying Social Security, especially if you’re the higher earner, can provide greater lifetime benefits—particularly for a surviving spouse. If needed, you can file early and withdraw your claim within a year to reset your strategy.
4. Fight Inflation with TIPS
Retirees often overlook inflation-protected bonds (TIPS). Consider allocating part of your fixed income to TIPS or creating a “ladder” of TIPS maturing each year to match living expenses.
5. Use Tax Opportunities
Market volatility can lower your taxable income, making early retirement a smart time to convert traditional IRAs to Roth IRAs. This reduces future tax burdens and maximizes retirement flexibility.
By planning ahead and staying flexible, retirees can better manage risks and help ensure their savings last throughout retirement.
