Can Your Retirement Survive a Bear Market?

If you’re retired or nearing retirement, you know how unsettling a market downturn can feel. When headlines scream uncertainty and your portfolio seems to shift with every news cycle, it can be tough to stick with your plan.

But that’s exactly what we help our clients do—stay disciplined, confident, and on course, even when the market feels anything but stable.

In this post, we walk you through the key strategies we use to help retirees weather bear markets and keep their financial goals intact.

Step 1: Maintain 12–18 Months of Distributions in Cash

We advise clients who are retired—or within two years of retirement—to keep 12 to 18 months of expected portfolio distributions in a dedicated cash reserve account.

If your portfolio drops significantly in a downturn, you don’t want to be forced to sell investments at depressed prices just to meet income needs. Instead, you can draw from your cash reserve while allowing your equities time to recover. According to Yardeni Research, the average bear market lasts around nine months. With a well-stocked cash reserve, you can ride out much of the volatility without altering your long-term strategy.

One client described this as having “a soundproof room between us and the market noise.” That’s the power of planning ahead.

Step 2: Replenish Cash from Fixed Income

In rare instances where the bear market stretches longer than the historical average, we can take the next step: draw from your fixed income holdings rather than stocks.

This helps in two powerful ways:

• Avoid locking in losses on equities by not selling them while they’re down.
• Rebalance your portfolio by shifting back toward your target allocation—selling high (bonds) and buying low (stocks), just like we’re supposed to.

Here's an example. James and Sarah Smith retired last year at age 67 and receive $7,000/month from James' IRA. Their portfolio is a 70/30 mix of equities and bonds, and they have 12 months of cash in their bank account. Fast forward to the first week of April 2025. President Trump’s tariff announcement caused what’s now being called the Trump Tariff Tantrum—the S&P 500 dropped 10% in just two days.

Despite the turbulence, their bond allocation held steady—and even increased slightly in value. If for some reason they'd needed cash from their portfolio, we’d have replenished their cash reserve by selling bonds, not stocks. Strategic moves like this are key to long-term stability.

Step 3: Making Lemonade—Tax Loss Harvesting

Downturns aren’t just challenges—they’re opportunities.In taxable accounts, we proactively look for ways to harvest tax losses. This means selling investments that are temporarily down, then immediately reinvesting in similar assets to keep your portfolio strategy intact.

These realized losses can then:

• Offset up to $3,000 in ordinary income per year, and/or
• Offset current or future capital gains.

Tax loss harvesting is one of the silver linings of a rough market, and proactive planning makes it possible.

Recap: A Retirement Plan That Brings Peace of Mind

When markets decline, here’s how we help our clients stay steady:

1. Maintain 12–18 months of cash to avoid panic selling.
2. Replenish cash from fixed income if conditions warrant.
3. Use tax loss harvesting to turn downturns into planning opportunities.

The key isn’t prediction—it’s preparation. Volatility is part of the journey, but a smart, disciplined strategy can help your retirement not just survive a bear market, but thrive through it.