For those with decades until retirement, the market’s swings are just a part of the investing process. As long as your asset allocation is in line with your risk tolerance, you can more or less sit back, ignore daily movements and turn off CNN when things get rocky. But for new retirees and those just a few years away, a tanking market is a scarier prospect.
If that’s you, you need to start moving some of your assets around to a less risky mix. First, though, a word of caution: Don’t overreact to minor dips or day to day gyrations, even if you’re close to retirement. Jonathan Clements, founder of the Humble Dollar, writes for Money.com:
Even if a market decline knocks 20 percent or 30 percent off the value of your stock portfolio, it’s unlikely your total wealth has declined that much. After all, you might have money in bonds and bank accounts, a home that you own, your future Social Security benefits, any pension you’re entitled to, and—maybe most important—your income-earning ability, all of which remain as valuable as ever.

“Viewing portfolio losses as a percentage of your net worth can be a lot less scary than looking at portfolio losses in absolute dollars,” seconds Dirk Cotton, who writes the Retirement Café blog.

All of that said, a down market in the early years of retirement can have reverberations throughout the rest of it. If you need to sell stocks at a lower price to cover your cost of living, you’ll have fewer shares overall off of which to keep earning in the future, and to sell in later years. You can see how that compounds. Near-retirees in 2000/2001 and 2008 know this well.
While some liquidity, which we’ll address more below, is your friend, that doesn’t mean you need to be all cash. In fact, you shouldn’t be. If you’re in your 60s, for example, and in relatively good health, you may have decades in retirement. You still need to generate some money, says Terry Eisert, founder and owner of Eisert Wealth Management in Cincinnati, Ohio.

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