A bear market offers young investors the opportunity to get into the stock market at something of a discount. It might be anxiety-inducing at times, but the results can be fruitful.
For retirees and workers nearing retirement who don’t have time to recover all of their losses, however, the calculation isn’t quite as rosy.
Financial planners typically recommend that their clients not invest money they’ll need in the next five years in riskier assets like stocks. Rather, it’s better to keep it in safer havens like cash. That gives you some breathing room, especially when there’s a period of economic uncertainty or a big drop in the market, like we’ve seen in the past month. That advice is easy to give, but much harder to follow when equity markets keep climbing, as they did the past few years.
Plus, many retirees who must take required minimum distributions (RMDs) from 401(k)s or individual retirement accounts (IRAs) don’t have much of a choice on timing, anyway. So what are these investors to do as they watch their nest eggs take hit after hit?
Unfortunately, there’s no way to go back to bull market times—at least not in the near future. And given that bear markets are relatively common, there’s a good chance this won’t be the last one retirees or near-retirees have to navigate.
Avoiding taking a distribution at all, if possible, or delaying your RMD until later this year, is the best course of action for now. But if you’re relying on your investment income to cover your day-to-day expenses, you might have to make some tough decisions about your spending.
“Retirees need to know how they are invested today and what parts of their portfolios are more susceptible to these drawdowns,” says Jake Eischens, a certified financial planner (CFP) and wealth advisor at RMB Capital. “Nobody can control the market’s returns, but retirees can control their spending. A good exercise is to review forward-looking expenditures in tandem with your portfolio to determine if a change in spending, investments, or both are needed.”
Given the one-two punch of a bear market and record inflation, being mindful of spending is especially important, advisors say. This is a good time to put off any larger, nonessential purchases.
Another option is to convert some funds in accounts like a traditional IRA into a Roth, says David Rosenstock, CFP and director at Wharton Wealth Planning. There will be an upfront tax bill this year, but it would be lower than if stocks were priced higher, and then the investments will grow tax-free (assuming you meet the other distribution requirements). A tax professional can help you work out whether this strategy makes sense and how to go about it.
“It’s important not to let the upfront tax bill prevent you from moving your retirement funds from accounts that are taxed no matter when you take them out, into accounts that are tax-free,” Rosenstrock says. “The point is to not be shortsighted at the expense of being hit with large tax payments in retirement.”
Finally, and perhaps least popular of all, Rosenstrock says a bear market may mean working a bit longer than anticipated—or join the Great “Unretirement.” A full quarter of workers are already postponing their retirement due to inflation, according to a recent report by BMO Harris Bank.
This is a tough decision to make, of course, but it could help you ride out the market’s current volatility. Another benefit: Delaying retirement—to age 70 if possible—can also boost your Social Security benefits.
“Working past the traditional retirement age, either part- or full-time, is a great way to stretch and supplement retirement income,” he says. “Delaying retirement can have a significant impact on retirement finances by giving your existing retirement savings more time to grow and shortening the period of retirement you will need to pay for.”
This story was originally featured on Fortune.com