Should You Delay Retirement in a Bear Market?

Ridofranz / Getty Images/iStockphoto
Ridofranz / Getty Images/iStockphoto

Bear markets are a natural and unavoidable part of the peak-to-trough cycle. According to Hartford Funds, there have been 26 bear markets and 27 bull markets since 1928. With up and down cycles nearly split down the middle, the only sound retirement plan is one that prepares you to leave the workforce during either.

“There will always be bear markets,” said Anne Lester, who spent 29 years as a portfolio manager and head of retirement solutions for JPMorgan Asset Management’s Solutions group. “If the success or failure of your retirement plan hinges on the market being good at the moment you retire, it may be a sign that you need to think through your plan again, which might mean working longer so you have a larger nest egg.”

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It would be great if your portfolio was red hot on your last day of work, but if you invest for 50 years, you can expect to endure 14 bear markets.

Here’s what to do if the fates link one of them to your retirement date.

Do You Have the Cash To Cruise for a Few Years?

Historically speaking, bear markets are just as common as bull markets, but downturns don’t stretch out nearly as long as upswings. According to Hartford Funds, the average bear market lasts 289 days, or roughly 9.6 months. The average bull market, on the other hand, lasts 991 days, or about 2.7 years.

Not only are bear markets typically much shorter, but the lows aren’t nearly as low as the highs are high. Stocks lose an average of 36% in a typical bear market, but they gain an average of 114% in a bull market.

That means that if your date coincides with a downturn, but you have enough savings to float you as you ease into retirement, you probably won’t have to wait long before your portfolio bounces back. Then, you can start drawing from it when you’re up.

“Retiring in a bear market is not necessarily a bad idea if you have a comfortable cushion and you are able to manage the first few years of your retirement without needing to seek down your portfolio while the markets are down,” Lester said. “It can make sense to think about things more from a ‘cash flow’ perspective. That is, do you have enough income coming in from Social Security, annuities, deferred compensation, or part-time work to maintain the minimum lifestyle you are willing to have? If so, then retiring during a bear market may be fine.”

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Consider Gradually Easing Out of Work and Into Retirement

If the current bear market has given your portfolio an especially hard beating, and you aren’t confident that your cash reserves can carry you long enough for the next bull market’s return, there’s no rule that says you have to make a clean break with the life of an employed person.

“Many people equate retiring with leaving the workforce completely, but this isn’t necessarily the case,” said Jason Schram, founder of retirement plan rollover firm Gold IRA Astute. “If you have the option to continue working part-time or in a different capacity, doing so can help offset any losses in your retirement savings.”

Strategize, but Don’t Stress

According to Hartford Funds, half of the S&P 500’s best days in the last 20 years happened during a bear market. Another 34% happened in the first two months of a bull market — before it was even certain that a bull market had begun.

In short, there’s no such thing as a pure downturn, and even bear markets have a lot of good days. Trying to time your exit is a fool’s errand — don’t base any decision you make on the day-to-day ups and downs

“Do not review your investments daily,” said Kara Metcalf, a retired corporate finance professional who travels the country with her husband while writing her travel blog Trying to Unwind. “This will cause most people needless anxiety and worry. Instead, plan regular check-ins to see how your accounts are doing without obsessing over daily fluctuations.”

Metcalf, who maintains her certified public accountant license in retirement, recommends shifting your investments into low-risk securities like bonds.

“These will be impacted much less by market downturns and will better protect your capital,” she said. “Once things start to improve, maximize your growth by shifting some — not all —  investments back into less risk-averse securities.”

In All Cases, Your Circumstances Should Determine Your Plan

Metcalf’s strategy of shifting to low-risk bonds and then back to more aggressive securities works only if you’re able to transition out early in the downturn and back in once the good times return.

While some people will be able to pull that off, others might be better off riding out the storm and waiting for the rebound.

“Retirement is very unique to each individual,” Metcalf said. “If you have doubts about your preparedness or will not adjust your lifestyle by cutting back if necessary, then delaying retirement might be best. If you are confident with your retirement savings and, if needed, you are willing to scale back spending and possibly work part-time, then don’t let a market downturn keep you from retiring.”

Carter Seuthe, CEO of Credit Summit Consolidation, is adamant that these kinds of decisions are best not made alone.

“I would highly recommend meeting with a financial advisor to figure out the best steps to take according to your own unique financial situation,” he said.

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This article originally appeared on Should You Delay Retirement in a Bear Market?