Written by Let’s talk about something nobody loves but everyone faces at some point: a market downturn. You might have heard, “Just ride the dip!” That works when you’re still working and investing. But when you’re living off your investments, it’s a whole different game.
So how do you keep income flowing, stay calm, and still enjoy your retirement lifestyle when the market drops?
It starts with a wise plan.
Step 1: Build a Portfolio That Can Handle Volatility
Recessions happen. Historically, we see a recession every 10 years, sometimes more.
That’s why your portfolio needs to already account for downturns. One model I like is the Permanent Portfolio, which spreads your investments across four economic scenarios:
- Stocks for economic growth
- Cash for recessions
- Gold for inflation
- Long-term treasuries for deflation
There’s always something that performs well depending on the economy. If your plan includes that from the beginning, market dips don’t have to wreck your peace of mind.
Step 2: Use a Withdrawal Strategy That Protects You
Enter the Three-Bucket Strategy.
This is my favorite way to withdraw money during retirement because it helps protect your investments and your lifestyle.
💼 Bucket 1: Cash (Conservative)
- 1-2 years of living expenses
- Stored in cash, CDs, or money market accounts
- Super safe, very liquid, but low growth
This is your buffer when markets drop. You don’t want to sell stocks at a loss.
🧳 Bucket 2: Income (Moderate)
- 3-8 years of living expenses
- Includes bonds, preferred stocks, annuities, TIPS (inflation-protected securities)
- Grows enough to keep up with inflation
This bucket replenishes your cash bucket when it gets low. When the market is rough, your income bucket steps in.
🌍 Bucket 3: Growth (Aggressive)
- 10+ year horizon
- Stocks, real estate, personal business, even crypto
- Higher growth potential, but needs time to recover after downturns
This bucket is where long-term growth happens. When markets are booming, you harvest gains to refill the other buckets.
Step 3: Adjust Your Spending (Without Losing Joy)
During a market downturn in retirement, one of the most powerful things you can do is adjust your lifestyle spending… without sacrificing your joy.
Now, I’m not saying you stop enjoying life. I’m saying we get a little more intentional and maybe a little more creative.
Instead of flipping your lifestyle off, you just dial it back a notch. Instead of flying to Europe for a $7,000 getaway… maybe you take a weekend trip to St. Augustine, rent a cute little Airbnb, and eat at the local seafood joint. Still a great experience. Just doesn’t hit your wallet the same.
Because when the market’s down, your retirement accounts are recovering. That’s not the time to force withdrawals and lock in losses. It’s the time to preserve your savings and give your investments space to rebound.
Decreasing expenses doesn’t mean decreasing happiness. It just means getting creative.
Step 4: Turn Off the Noise
I mean this one with love… but seriously: Turn. The. TV. Off.
If you’ve ever watched the news during a market downturn, you know what I’m talking about. It’s like every channel is trying to outdo the other with fear. One minute, someone’s yelling “SELL EVERYTHING!” The next, another expert’s screaming “BUY THE DIP!”
And you’re just sitting there with your retirement accounts like… “What do I do?!” News is designed to get your attention. And nothing grabs your brain faster than fear.
The first few seconds of any local broadcast? Car crash. Robbery. Murder. Political chaos. Your brain hears danger and says, “I better stick around to stay safe.”
But here’s the thing. When you’re watching the market coverage while your money is in the market, your emotions take over. And when your emotions take over, your plan usually goes out the window.
Here’s What I Do Instead
I stopped watching the news a while ago. It was making me feel like the world was always on fire. So instead, I check my financials on a schedule. I lean on my investment strategy. I talk to people I trust. Because the more noise I tune out, the more wisdom I can tune in.
Step 5: Take Advantage of Downturns (Yes, Really)
Market downturns can actually create opportunities:
📊 Tax-Loss Harvesting
If Market downturns aren’t just scary moments . They’re hidden opportunities. I know that might sound a little strange, especially when the headlines are shouting “recession” and your account balance is going down instead of up. But here’s the truth:
Smart investors don’t just survive downturns… They use them to build future wealth.
Let’s start with tax-loss harvesting. This is a fancy way of saying, “If I lost money on some investments, can I at least save money on my taxes?” The answer is yes (and it’s a big yes). If one of your holdings is down $30,000 and you have gains elsewhere, you can use those losses to offset your capital gains. That could mean thousands of dollars back in your pocket instead of the IRS’s.
And it doesn’t stop there. You can even take an additional $3,000 loss against your regular income. Then… and this is the part most people miss… you can carry forward any unused losses into next year and beyond. That means one bad year in a market downturn could give you tax savings for years.
Example:
- $25K capital gain from one investment
- $30K capital loss from another
- Offset the $25K gain (no capital gains tax due) ($25,000 * 15% = $3,750)
- Deduct $3K of the loss from your regular income ($3,000 * 35% = $1,050)
- Carry forward the remaining $2K to next year
Boom. That’s $4,800 ($3,750 + $1,050) in tax savings.
🥧 Roth Conversions
But that’s just the beginning. Downturns also open the door for Roth conversions. If your 401(k) or traditional IRA is down in value, you can convert a portion of it to a Roth IRA while the balance is low. And that means paying taxes on a smaller amount.
When the market bounces back (and history shows it always has), all that growth happens tax-free. That’s what I mean when I say we turn lemons into lemonade. It’s about seeing the moment not just for what it is, but for what it could become with a little bit of wisdom.
Final Thoughts: Don’t Let a Market Downturn Shake You
You can retire with wisdom and peace.
When the market dips, ask yourself:
- Do I have a buffer?
- Am I selling because of fear or strategy?
- Have I considered tax-smart moves like harvesting or Roth conversions?
The goal is to buy low and sell high, not the other way around. A strong asset allocation removes the emotion. Rebalancing automatically helps you buy what’s low and sell what’s high.
This isn’t about timing the market. It’s about time in the market, with a plan that protects you.
Call to Action
If this has your wheels turning and you’re wondering, “Do I have enough protection in place?” or “Can I really keep living the life I want?” — you’re not alone.
Join me for my free live Wednesday workshop where I walk through the Five Hidden Risks to a Wealthy Retirement and show you the three frameworks I use to protect income, health care, and lifestyle.
🔽️ Click here to reserve your spot
Or if you’re ready to start personalizing your plan, you can also book a Retirement Risk Assessment with me.
📅 Click here to schedule an appointment
Let’s build a plan rooted in wisdom, not worry.
Until next time, stay safe and enjoy life.
Dre Griggs, CFP®, MSAE
Image from: freepik.com