I'm not going to sugarcoat maxing out a 401(k). It can be difficult, especially at first. However, with time, it becomes a regular part of your financial routine, and you barely notice that you're doing it. In my case, the fact that my retirement contributions are tax-deferred certainly helps, but so does the fact that I was eventually able to base my monthly budget on the money left after retirement contributions were made.

After years of maxing out our 401(k) contributions, I realized I need to do more. Yes, my husband and I are still contributing to our retirement account, but not as much as we once were.

Image source: Getty Images.

A wake-up call

Being a financial writer doesn't mean you never make a money mistake, and while working on an article about bear markets, I realized a change was needed. Simply put, we didn't have enough cash set aside to access when the market is in the dumps.

Those pesky bear markets

Our financial plan after my husband retires is to rely on four sources of income: Social Security benefits, a pension, small royalty checks, and regular withdrawals from our retirement account.

I've spent so many years focusing on the importance of building a retirement account that I failed to consider what would happen when the first bear market hit. A bear market is defined as a 20% or more decline in investment values from recent highs.

For example, the dot-com bubble burst of 2000-2002 led to a 49% drop and a serious bear market. The financial crisis of 2007-2009 saw the S&P 500 drop by around 57%, leading to another mother of a bear market. And you may remember the bear market that accompanied the COVID-19 pandemic in 2020, causing the market to fall by about 34%.

The truth is that bear markets are nothing to fear. They come and they go, and, better yet, they don't last nearly as long as bull markets do (defined as a rise of 20% or more in investment values from recent lows). So far in history, every single bear market has been followed by a bull market that more than made up for any losses -- if an investor kept their money in the market, that is.

That's where a cash account comes in

Without a cash account, I'd be forced to withdraw from our retirement account, even when the market is weak. If I do that, here's what could happen:

• Since prices would be depressed, I'd have to sell more of our assets to raise the money we needed.
• Selling more assets would mean we'd miss out on the profits we could have earned as the market recovered. Just as bear markets are an ordinary part of the economic cycle, so are bull markets, and those who've made the most money in the market are those who hung in long enough to profit from rebounds.
• The more assets I have to sell, the less financial security we have in retirement. The worst thing we could do is run out of money to cover expenses as we age.

It's not just the stock market

By investing so much into a retirement account each month, I paid less attention to how much was going into other interest-earning cash accounts, such as high-yield savings accounts, certificates of deposit (CDs), and money market accounts (MMAs).

Not only will having a nice lump sum in these accounts provide a cash cushion during bear markets, but it can also serve as an emergency fund. Things will happen in retirement, such as higher-than-expected medical bills, necessary home repairs, and eventually, the need for a new vehicle.

Since I'm determined not to deplete our retirement account, it makes far more sense to have an alternative source of cash to cover unexpected expenses.

My goal is to have enough cash saved to cover us through several bear markets and to pay emergency expenses. While I can't know precisely how much we'll need, I'm doing my best to estimate.