Retiring in a bear market can be catastrophic — working one more year can make a huge difference

Avoid locking in losses. Even a part-time job can buy you some time.

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Timing, apparently, is everything. Especially when it comes to retirement.

Retiring in a bear market can harm your portfolio for the long-term, even if the market eventually recovers, according to a new study by SmartAsset.

This is all due to sequence risk, which essentially means that when you’re taking withdrawals from a portfolio, the order – or the sequence – of investment returns can affect your portfolio’s overall value. Basically, account withdrawals during a bear market are more damaging than the same withdrawals in a bull market.

Read: How the U.S. dollar could put this stock-market rally to a big test

“The details of when you retire are important,” said Susannah Snider, managing editor for financial education at SmartAsset. “The early retirement years are so important.”

After 2022, which saw the S&P 500 SPX, +0.99% drop nearly 20%, SmartAsset examined two previous bear markets – 2001 and 2008 – to see how starting retirement in a down year can affect long-term investment savings and to what degree. 

In the study, each investor held $1 million in an investment account at the start of a year in which stocks lost value. Each saver planned on a 4% withdrawal rate, which would increase with the historical rate of inflation. To keep it simple, SmartAsset assumed the accounts didn’t have required minimum distributions or mandated withdrawals.

The preretirees each maintained a portfolio of investments that were mixed, with 50% pegged to the S&P 500 and 50% tied to the performance of a bond index mutual fund, the study said.

The only difference between the investors was the date of their retirement withdrawals.

In each bear market scenario, one investor began account withdrawals in a down year and locked in losses early. The other investor waited until the year when markets started to recover.

The difference was huge.

In the example of the 2001 bear market, Retiree A moved ahead with retirement and began making withdrawals. Retiree B decided to delay retirement account withdrawals, choosing to work longer or live on cash savings for an additional three years. 

“Despite experiencing the same annual returns, rates of inflation and subsequent withdrawals, the difference is stark,” SmartAsset said in the study. 

Retiree A’s account is now worth $833,934. Retiree B, who waited to start making withdrawals until the market recovered, has an account valued at $1,332,513 – or $498,579 more, SmartAsset said.

In the 2008 bear market scenario, Retiree A retired, initiated withdrawals and now has a balance today of $1,163,628.

Retiree B waited just one additional year until the markets recovered. That balance today is $1,262,926. The total difference – after only one extra year of delayed withdrawals – is $99,297, SmartAsset found.

“We always talk about that over 30 years, the market will go up and don’t worry. But we found that those early down years are really impactful,” Snider said. “If you don’t do anything differently, the money does not come back.” 

Of course, hindsight is 20-20. But the SmartAsset study is a cautionary tale. 

So what does that mean for near-retirees now who look at the turbulent markets, the prospects of a few more interest-rate hikes and the looming threat of a possible recession?

“I definitely cannot prognosticate this year. But if you are soon to be retired or a new retiree, talking to a financial adviser may be a good idea or consider putting off retiring. Or considering what bucket you’re taking money from so you’re not locking in losses may be wise. 100% look at your alternatives,” Snider said.

Of course, not everyone has the option to keep working three additional years due to health or life circumstances.  

“It doesn’t have to be all or nothing. Continuing to work, even part time, or consulting, or a seasonal job, just to have some income so you can reduce the amount you’re taking out can help,” Snider said. “Consider taking money from a short-term savings bucket so you’re not locking in investment losses. Or drawing down 2% rather than 4%.”

Snider said the least painful option, in her view, is to delay big expenses until the markets recover.

“Push back the vacation, push back the massive cruise you were hoping to take. Some expenses can be adjusted. It may not be fun to hear, though,” Snider said. 

Snider said she doesn’t recommend people try to time the markets. But minimizing withdrawals for at least a year and re-evaluating again may be wise when faced with down markets, she said.

“It’s hard to give blanket advice to everyone. I would say take a holistic look at your savings. If you’re feeling uncertain, retirement doesn’t have to be all or nothing. Maybe there are steps you can take to tamp down your exposure to investment losses,” Snider said. 

Do you have questions about retirement, Social Security, where to live or how to afford it all? Write to and we may use your question in a future story.