4 Steps to Take if You're Near Retirement and Facing a Bear Market

Whether you're racing (or creeping) toward retirement, you probably don't love the idea of entering this new stage of life smack-dab in the middle of a bear market, which is when the stock market goes through an extended period of declining prices. Retiring following a market decline of 20% or more may not seem ideal, but it's not unmanageable. Here, we'll look at four steps designed to help you over the hump.

1. Revisit your portfolio

T. Rowe Price reminds soon-to-be retirees to make sure their portfolios are properly allocated for this stage of life. That means taking a fresh look at your investments to ensure a balance that can help keep you afloat through a bear market.

The tricky bit here is that there is no one-size-fits-all solution regarding "proper" allocation. For example, Charles Schwab suggests investors in the early years of retirement maintain a higher allocation of stocks to guard against outliving their money, while those in their later years should prioritize income generation and preserving their capital.

Echo Wealth Management reminds clients to include non-portfolio income, such as Social Security and pension income, in their investment plans to avoid the risk of overweighting bonds.

The point is, now is the time to revisit your portfolio and make adjustments that fit both your goals and risk tolerance. And even if you've self-managed your investments for decades, now would also be a good time to meet with a retirement financial planner. It pays to have an extra set of eyes on the income you're counting on to fund at least part of your retirement years.

2. Plump up the cash

Financial guru Suze Orman recently tweeted a piece of advice related to this topic. Orman's tweet reads in part, "My recommendation is to keep three to five years of living expenses in a money market account or a high-yielding savings account."

According to Orman, making those funds easily accessible means you won't have to withdraw money from your portfolio right as a bear market or recession is eating away at its value. Instead, you can give the market time to recover and allow your investments to grow as the bear market inevitably morphs back into a bull market.

3. Look at guaranteed income

If you haven't done so already, it's time to develop a post-retirement budget. Take a look at your current expenses and decide how those expenses may change once you retire. For example, will you spend less on transportation costs, but more on utilities?

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Once you have an idea of how much you'll be spending each month in retirement, compare that amount against guaranteed sources of income, such as Social Security, pension, rental property income, and annuity payments.

The closer you can get to covering your monthly payments with guaranteed income, the less you have to concern yourself with bear markets because you won't have to dip into retirement to pay bills.

4. Be flexible

Life throws curveballs, and anyone can get hit by one. If you're not nearly where you hoped to be financially as you approach retirement, identify the reason why. If it's because you're carrying too much debt, consider working a year or two longer to pay off those extra debt expenses.

If the idea of sticking with your 9-to-5 job one day longer than necessary makes you sick, consider a way to turn a hobby or talent into a fun and rewarding business. Or think of a part-time job that sounds appealing to you and find out what it takes to land the role.

Planning for a bear market is wise, but there's no reason to fear the market downturn. According to Hartford Funds, history is on our side.

Between 1928 and 1945, there were 12 bear markets, one approximately every 1.5 years. Since 1945, there have been 15 bear markets -- or one every 5.1 years or so. And when a bear market happens, it's always followed by a pretty impressive bull market. On average, stocks lose 35% during a bear market (which is why you want to avoid withdrawing funds during that time). By contrast, stocks gain an average of 111% during a bull market. Any money left in your portfolio has the potential for tremendous growth.

Some of us have a tendency to gather things to worry about. Once we put one worry to rest, we look for another. If the potential impact of a bear market during retirement is one of the things you stress over, a visit with a retirement planner may just take a load off your shoulders.