Stock Market Losses or Lower Returns: Which Is More Dangerous to Your Retirement?

One eye-opening, simple math equation can clearly show retirement savers the answer to that question, and if you are among those investors who take pride in their high-performing portfolios, you may be surprised.

(Image credit: Ilya Terentyev)

Do you want to make your savings last throughout retirement? If you do (and of course you do), I believe that once you are within five years of retirement, you need to invest more conservatively than you did while you were growing your savings. But in most cases, a more conservative approach translates into lower returns. Is it a worthwhile trade-off?

I believe so, and I’d like to illustrate my point with a question: If you lost 50% of your money in a bear market, how much would you need to make to get back to even? Did you say 50%? If so, you’re in good company: When I ask this question during seminars, that’s usually the answer I receive. It’s also a wrong answer. Let’s do the math:

How a 50% Gain Can Result in a $250,000 Loss

If you had $1 million saved for retirement and lost 50%, you would have $500,000. Ouch. If you made 50% on that $500,000, you’d make $250,000, which would bring your total up to $750,000, not $1 million. You’d need to make 100% to get back to even.

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And if you did need to make 100% to get back to even, how long would that take you? At 2% per year, it would take you 35 years to recover. If you made 6% per year, you would need 12 years to get back to even. Even if you made 10% per year, it would still take you seven years to recover your money. And what are the odds you’d make 10% every year for the next seven years? Sounds like a pretty high expectation to me.

How Realistic Is a 50% Loss?

That's the cost of losing money, and that’s why I believe losing money is more dangerous to your retirement than lower returns. Yes, losing 50% of your money may be an extreme example, but people have lost that much, and in recent memory. The S&P went down almost 50% in the Y2K bear market, and dropped 57% in 2008.

One more factor to consider: I don’t believe many retirees can afford the time cost involved with waiting. If you were retired and living on your investments, would you be able to drastically cut your cost of living while you were waiting for your money to come back to even?

What People Near Retirement Should Do

In my opinion, the best way to make your savings last is to employ a conservative investment approach once you’re within five years of retirement. That approach should include:

  • Taking only as much risk as is necessary to accomplish your financial goals.
  • Employing a strategy that can protect your investments during bear markets.

Yes, those tactics may result in lower returns. But as I think I’ve shown, the cost of lower returns can be worth the cost of protecting your retirement.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Ken Moraif, MBA, CFP®, CRPC®
CEO and Senior Adviser, Retirement Planners of America

Ken Moraif is the CEO and founder of Retirement Planners of America (RPOA), a Dallas-based wealth management and investment firm with over $3.58 billion in assets under management and serving 6,635 households in 48 states (as of Dec. 31, 2023).