Concerned about market ups and downs now that you’re living off your savings?
There are ways to approach this in order to ease the burden of your portfolio.
The key? Don’t sell your investments when the market’s in the gutter. Here’s a quick guide to keeping your retirement cash flowing, even when stocks are tanking.
Plan Ahead (If You Can)
The best move is to be ready before the market dips or crashes. I advise clients to stash about a year’s worth of expenses in cash—think savings accounts or money market funds.
Then, keep two to four years’ worth in safe, easy-to-cash-out assets like short-term bonds or CDs. That’s your buffer so you’re not forced to sell stocks at a loss. A four-year cushion usually covers most bear markets—history shows they take about three and a half years to bounce back on average.
Caught off guard by a downturn? You’ve still got options to protect your nest egg.
Figure out how much you can pull from your portfolio each year comfortably. The old 4% rule is a starting point, but it’s pretty basic. For a more personalized approach, work with a financial planner or use an online tool.
If you assess your withdrawal rate may not be sustainable, consider skipping this year’s inflation increase or trim some non-essential spending.
Look For Ways to Trim Your Budget
Budgets aren’t sexy, but tracking your spending helps identify where your money’s going.
Focus on cutting back on wants and wishes first—like fewer restaurant nights or less expensive restaurants, fewer happy hours or pushing off that new car. These also include the nice-to-haves a gym membership or travel.
Group your expenses:
- Needs: Food, housing, healthcare, insurance, taxes
- Wants: Dining out, gym memberships, travel
- Wishes: Those “if I won the lottery” items
Even small adjustments now can make a big difference in reducing the need to sell investments that have dropped in value in a down market, which can go a long way in helping your investments last through retirement.
Find Alternative Cash Sources
Get creative—check for forgotten accounts, file for tax refunds early, or consider selling junk items you no longer need. If you own an annuity that’s not generating income yet, talk to a specialist about turning it on now to avoid tapping your investment portfolio.
Every dollar you scrape up means less you need to pull from investments.
Sell Smart (If You Must)
If you’re forced to sell investments—especially during a market downturn—don’t just sell without a plan. There’s a smart way to raise cash that protects your portfolio and keeps taxes in check:
- Tap Interest and Dividends First
Start with the money your investments are already throwing off—like interest from bonds or dividends from stocks in your taxable accounts. This is cash you can use without selling anything, so your principal stays intact and keeps working for you. It’s also predictable, giving you a steady flow to lean on. - Tax Tip: Interest gets taxed like your regular income (bummer), but dividends might qualify for lower rates—0%, 15%, or 20%, depending on your income and how long you’ve held the stock. Bonus: Interest from municipal bonds? Often tax-free at the federal level, and maybe even state too.
- Cash In Maturing Bonds or CDs
Got bonds or certificates of deposit (CDs) hitting their end date? Use that principal. It’s money coming back to you naturally, and it usually doesn’t stir up a tax bill. - Sell the Steady Stuff
Next, look at lower-risk investments like short-term bond funds. These don’t bounce around as much as stocks, so you’re less likely to lock in a big loss. - Rebalance to Raise Cash
If the market’s shifted your portfolio out of whack (say, stocks dropped and bonds are now a bigger slice), sell what’s overgrown to get back to your target mix. This lets you raise cash and keep your plan on track. - Ditch the Duds
Take a hard look at your underperformers. If you wouldn’t buy more of it today, why hang on? - Harvest Losses for Tax Breaks
Got investments sitting below what you paid? Sell them to “harvest” the loss. You can use it to cancel out taxable gains or even shave up to $3,000 off your ordinary income each year. It’s one small silver lining in a down market. - Play the Long Game for Lower Taxes
When you do sell, pick investments you’ve held for over a year. Long-term capital gains get taxed at friendly rates (0%, 15%, or 20%) instead of the higher short-term rates that match your income tax bracket.
Leaving your original investments untouched means it can potentially continue to grow, and potentially yield more dividends and interest over time.
The Bottom Line
You can’t predict the market, but you can control how you respond to it. Even small adjustments to your withdrawal strategy can help your portfolio recover and last longer.
After all, retirement planning isn’t just about the numbers – it’s about maintaining your peace of mind during uncertain times.
Still stressed? Chat with a financial advisor who can tailor this to your life and help you sleep better at night.
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