RETIREMENT: How to Protect Your Portfolio

Take these steps to help your retirement savings withstand the bear.

- SANDRA BLOCK

BEAR MARKETS CAN BE nightmarish for retirees. Unlike their younger counterparts, retirees don’t have years to recover their losses. If they are forced to sell beaten-down stocks and mutual funds to pay the bills, they could inflict permanent damage on their portfolios, increasing the risk that they will outlive their savings.

That’s what happened during the Great Recession. Standard & Poor’s 500stock index lost more than half of its value during the bear market of October 2007 to March 2009, and IRAs and 401(k) plans lost about $2.4 trillion in value just during the final two quarters of 2008. Investors who rode out the downturn recouped their losses in the 11-year bull market, but seniors who took withdrawals before the stock market recovered were left with locked-in losses.

Ideally, you have prepared for this calamity by sequestering enough in cash or other low-risk investments that, when combined with guaranteed sources of income, you can cover at least two years of living expenses. “It’s the equivalent of an emergency fund within your retirement plan,” says Andrew Houte, a certified financial planner in Brookfield, Wis. You’re even better prepared if you’ve adopted the bucket system, in which you divide your savings into cash, short- or intermediate-term bond funds, and stocks, based on when you’ll need the money (see “Harvest the Fruits of Your Savings,” Oct. 2019).

Cut expenses. After years of stock market gains and a roaring economy, some retirees and near-retirees may have forgotten the lessons of the Great Recession. David Mullins, a CFP in Richlands, Va., says he recently received a call from a retiree who had invested 100% of his savings in stocks. On one day in mid March, his portfolio lost more than $112,000.