Retirees Can’t Underestimate This Stock Market Risk
If the market tumbles right around the time you're retiring, it can have a powerful impact on how long your retirement assets will last. While you can’t control the market, there are other factors that are in your own hands.


If you’ve been saving for retirement for many years, you’ve probably noticed that, in so many cases, time really does have the ability to heal wounds.
There can be long and short periods when returns in the market are mostly negative. But if you save consistently during your working years and stay invested through up and down markets, you can be pretty confident your nest egg will continue to grow. It may take awhile to recoup the money you lose, but even the train wreck that was 2008-2009 has been forgotten by many investors, thanks to this record-setting bull market.
Nerve-racking as it is, the market really is the best place for many investors during their accumulation years.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Things can get a little shakier, though, when you retire and start taking income from your portfolio.
If you withdraw 4% yearly from a portfolio that’s still appreciating in value, in theory you’ll be fine; those withdrawals should have little effect on your remaining balance. But if you take that withdrawal from a portfolio that’s depreciating – especially in the early years of your retirement – the results could be devastating.
Financial professionals call this “sequence of returns risk,” and it means the order in which good and bad years occur during the distribution stage of your financial life can have a powerful impact on how long your retirement assets will last. Any market volatility at all is going to hurt, but if it occurs in the first five years after you begin taking income, there’s a significant chance you could run out of money much faster than you planned. Your account just won’t have enough years to recover.
Now, there’s a tendency by some to paint this point as though it’s all about bad timing: You might get lucky and dodge the bullet. Or maybe you’ll just get grazed.
But it’s not nearly as serendipitous as that.
You can’t treat major market fluctuations as some rare occurrence that you can avoid with just a little luck. They happen more often than we like to think. (Check any period from the Great Depression until today and you’ll see what I mean.) This is just the reality of what the market does. It goes up and down.
We’re increasingly seeing people who are retiring without an employer pension – which means they’re largely in charge of their own future financial security. The decumulation dance has always been made up of complicated steps. But now it’s even more difficult.
So, as tempting as it is to grab onto the potential growth of the market and hold on tight, if you’re depending on your own savings for a good chunk of your retirement income, you must give serious thought to your exposure. For example, you might want to consider dialing down the risk in your portfolio and look at alternatives to the stock market. This is simply a matter of making sure your asset allocations align with your tolerance for risk.
While no strategy assures success or complete protection against loss, there are a number of products and techniques – index funds, annuities, interest-bearing bank accounts, trusts, etc. – that can help mitigate sequence of returns risk, and some guarantee income for as long as you live. They may provide the buffer you need to avoid selling equities at a reduced price.
Consider financial vehicles that can help reduce risk during retirement, and then you can have fun with what’s left to invest. If you do well with your investments, you may be able to take a cruise or buy a vacation home. That could provide some proper healing for just about any wounds.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered through AE Wealth Management, LLC (AEWM). AEWM and Your Own Retirement are not affiliated companies. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits; safety or security; or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

David Hickey is a managing director at Your Own Retirement in Cranberry Township, Pennsylvania. He has over 30 years of experience in the insurance, finance and investment industry. Hickey has earned the Certified Property and Casualty Underwriting designation from the American Institute. He has a Bachelor of Arts degree in English from the University of Pittsburgh. Hickey has contributed his time to coaching baseball and ice hockey; part and parcel of raising five children with his wife of 31 years, Susan.
-
Aging: The Overlooked Risk Factor
Sponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?
AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
Eight Tips From a Financial Caddie: How to Keep Your Retirement on the Fairway
Think of your financial adviser as a golf caddie — giving you the advice you need to nail the retirement course, avoiding financial bunkers and bogeys.
-
Just Sold Your Business? Avoid These Five Hasty Moves
If you've exited your business, financial advice is likely to be flooding in from all quarters. But wait until the dust settles before making any big moves.
-
You Were Planning to Retire This Year: Should You Go Ahead?
If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get It
The Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning Playbook
Consider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care Solution
If you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a Recession
Recessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income Planning
Once you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.