We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Published: Jun 22, 2022 10 min read

Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

Illustration of two people on a small boat with a protective shield about to fall down a waterfall
Jade Schulz for Money

A bear market can be scary for any investor. But if you are planning to retire anytime soon, a market downturn can be downright terrifying.

Stocks officially entered a bear market last week. The S&P 500 is currently down around 21% for the year, and U.S. Treasury yields (which move in the opposite direction of bond prices) recently hit their highest levels in a decade. The classic portfolio of 60% stocks and 40% bonds is getting clobbered, and, understandably, investors are fearful.

Given the current market environment, soon-to-be retirees are likely to be especially stressed about the prospect of living without a regular paycheck.

"We're in an uncertain, tumultuous economic period," says Chris Orestis, president of Retirement Genius, a national retirement information and resource platform.

But does that mean you should change your plans? Here's what to consider, as well as some financial moves to help make the transition into retirement as smooth as possible, even in a bear market.

Should you delay your retirement?

If you had your heart set on walking out of those office doors for a final time this year, it can be hard to convince yourself to stick it out for a bit more time. But doing so could really help you financially in the long term, Orestis says.

Inflation is at a 40-year high, as you are probably aware if you've gone grocery shopping or filled up at the gas pump recently. To battle those high costs, the Federal Reserve is hiking interest rates, most recently by 0.75% — the biggest increase by the central bank since 1994. While the hope is that upping interest rates will bring down those high prices you're experiencing, there are also constant fears that it could tip the economy into a recession. And the rate hikes have the stock and bonds markets in turmoil as investors assess what the state of the economy means for their portfolios.

In short, we're in unpredictable and unsettling financial times that aren't ideal for kicking off retirement.

"If it were me and I was going to declare I’m retired and have my retirement party, I'd look to delay it a year or even two if I could," Orestis says.

We know that the economy will follow a typical pattern — one in which interest rates go up, demand will cool and inflation will come down — but we just don't know the exact timeline, he adds.

If you're planning to retire...

Of course, not everyone has a choice about when to retire. Pilots, for example, are required to retire at age 65.

The good thing is that as long as you plan ahead, there shouldn't be major issues with retiring in a bear market, says ​​Rose Niang, a certified financial planner and director of financial planning at Edelman Financial Engines.

Besides, financial planning also means preparing for when things don't go exactly as you thought they would — like when a bear market hits, Niang adds.

Here are five financial moves experts say to make when retiring in a bear market.

Keep cash handy

Ideally, you want to wait until after the markets recover before pulling money out of your retirement portfolio. That means you'll probably need enough cash available so you won't feel forced to sell investments while they're at lows.

While market downturns are scary, "future returns really improve once stocks are down 20%," Ryan Detrick, chief market strategist at LPL Financial, wrote in a recent blog post. Looking at S&P 500 returns from 1950 until now, Detrick noted that the median gain a year after a bear market starts was around 24%.

If you are 12 to 18 months away from retirement now, Niang recommends that you start increasing your cash reserves while the markets are down. One way to do this is to re-evaluate your spending (more on this later) to help you save more. With ample cash on hand, you can delay digging into your 401(k) as soon as you retire.

Orestis recommends having two years of your retirement budget in cash. Consider stashing it in a high-yield savings account or some other safe, easily accessible account.

Do not panic sell

When markets were booming, investors were willing to spend money on risky assets like cryptocurrency and shares of companies that weren't even making a profit. Now that the market has taken a turn, investors may be tempted to cut their losses and pull that money onto the sidelines, especially if retirement is on the near horizon.

"That is what's truly destructive to people's planning: throwing in the towel," says Michael Wagner, co-founder of wealth management firm Omnia Family Wealth. "The challenge there is then getting back in and that's very hard to do."

If the volatile markets have you anxious, that's understandable. But remember that keeping your money invested now is likely the right move for your long-term plan, since the market's best days tend to happen right around the market's worst days — and pulling your money out now could mean missing out on the recovery. A J.P. Morgan Asset Management's 2022 "Guide to Retirement" report found that between January 1, 2002, and December 31, 2021, seven of the S&P 500's best days occurred within just two weeks of the index's 10 worst days.

"Ride this out if you can," Orestis adds. "The only thing worse than missing out on gains in a bull market is locking in your losses in a bear market."

Check your asset allocation

Staying invested doesn't mean ignoring your portfolio. If you're nearing retirement, you want to make sure that your asset allocation — as in, how your portfolio is divided up into different assets — still makes sense.

"It's really about checking in on your asset allocation regularly as you get closer to that date and making sure that it's still in line with your time horizon and where you need to be," Wagner says.

If that asset allocation is off target, it's time to rebalance, which essentially involves buying or selling various assets to get the weighting back in line with your original plan. For example, if a 60/40 stock-to-bond ratio makes sense for you, then when that ratio gets out of whack and you have 70% in stocks and 30% in bonds, you'll want to rebalance and get back to that original asset allocation.

"Sticking to your strategy — if it's a sound strategy based on your goals and based on your risk tolerance — is advice that's not dictated by markets," Niang says.

As Christine Benz, Morningstar's director of personal finance, pointed out earlier this year, when you're closing in on retirement "one-size-fits-all recommendations won't cut it." For Morningstar's site, she outlined steps you can take to determine your retirement asset allocation.

Re-evaluate your spending

Retiring during a bear market will be a little less scary if you can rein in your spending. Orestis recommends tracking your spending for one month — whether it's with an app or a pen and paper — to see if there are any expenses you can and should cut.

"Look at things like streaming and subscription services," Orestis says. "People are carrying so many things that they signed up for and they don't even use or they've forgotten about."

If you can, try delaying bigger expenses until markets become a bit more favorable, Niang adds.

Knock out your debt

If you're carrying debt, now is the time to try to pay it off.

As the Fed raises interest rates, rates on credit card debt, for example, increase too. So it's extra important to make sure you're not carrying a balance from month to month. If you are carrying a balance, make purchases on your credit card with the lowest annual percentage rate (APR).

If you're struggling with debt, look at debt consolidation options, Orestis says. He also advises trying to negotiate medical debt with a debt collector or directly with a hospital or doctors.

More from Money:

4 Tips for Investors After the Fed's June Rate Hike

'Buyers in a Tough Spot': Rising Mortgage Rates Mean Homebuyers Get Far Less for Their Money

7 Best Online Stock Trading Platforms of 2022