How Can Early Retirees Safeguard Their Nest Egg In A Market Downturn?

Today, we’re seeing more people retiring early than ever before. Research from the Federal Reserve uncovered that more than 3 million people retired early because of the pandemic and that 2.7 million people over 55 are “contemplating” an earlier exit from the workforce.

Given the recent market turbulence, those who started their golden years a bit sooner than planned may now be concerned about the state of their nest egg. 

Did you retire early but are now troubled with the recent downturn? You may have felt like you “made it” but are second-guessing yourself or questioning if you’ll be ok.

You might feel like you need to take action, but what should you do?

We’re here to help ensure that the market downturn doesn’t derail your plans.

Here are some ideas for early retirees to consider during these turbulent times.

Thoroughly Review Your Investment Strategy

You’ll naturally want to consider your investments and overall strategy when your account value drops. That’s okay and can be a valuable activity, but resist the urge to react out of fear. 

What does that mean? 

Don’t panic sell or try to time the market. What if you sell today, but the market starts its rebound tomorrow? There’s no way to know for sure what will happen. 

Selling out when the market is low locks in the losses and forces you to play a guessing game for when to jump back in. If you get it wrong—and it is a guess—you could materially miss out on the upswing. ​

To avoid this, have your advisor ensure you’re properly diversified and at your target allocation. Over time, your portfolio can drift away from your recommended balance, and periodically re-allocating can help you stay on track. You may also need to review your risk tolerance as turbulent times like these can be a bit humbling for someone who was a self-described aggressive investor. Risk tolerance can often decrease when you enter retirement. 

Remember, investing is a long-term endeavor full of many highs and lows. Prioritize your time in the market as opposed to timing the market. If the building blocks of your portfolio (asset allocation, risk preferences, time horizon, investment goals) remain the same, you probably don’t need to make as many changes as you think. 

Your advisor can also help you create an income plan that considers the market movements. Perhaps you’ll draw more from other sources until your portfolio rebounds (more on that later). 

Read Our Guide: What Issues Should You Consider During a Market Correction or Recession

Be Selective Regarding The Assets You Liquidate 

Just because there’s a market downturn doesn’t mean you stop requiring funds to support your lifestyle, so you’ll likely still need to take some distributions. This prospect can be especially worrisome. However, there are ways to make withdrawals that mitigate the effects of the market decline.

When you sell investments to raise the cash you need, be selective and strategic. You might consider selling out of conservative investments first, instead of those most impacted by the downturn. For example, short-term bonds versus aggressive stocks. Taking this approach will give your equities more opportunity to rebound. One of the ways we help our clients is by identifying the securities most appropriate for selling in a market decline.

We can help you adapt your plan when needed and not rely on one model for every circumstance—a considerable benefit compared to a Robo-advisor. 

A major disadvantage of most Robo-advisors is their reliance on sticking to a model, even if it doesn’t make sense given the situation. For instance, if you put in a cash request, the system will arbitrarily sell all funds pro-rata to meet the requirement. That means you’ll sell equal parts stock and bonds instead of something better tailored for your needs.

You can also consider adjusting your overall spending plan to reduce the need to sell investments. You can often use more efficient options to finesse the purchase of items you were planning to buy with a large cash outlay, which will buy more time to allow your investments to recover. 

An excellent example of this is a car purchase. Say you usually pay cash when buying a car. But if the terms are reasonable, it may be wise to finance that purchase instead. 


You don’t need as much cash upfront. Keep in mind that you always have the option to pay the car off early once your investments recover and make up the losses. Even if you still have to take distributions to make the car payments, going about it this way will reduce the amount of money you have to withdraw immediately.

Remember Your Goals and Make Your Spending Deliberate

Once you finesse your investments as much as possible, another powerful tool is to cut expenditures altogether. 

Ask yourself, are there planned expenses you can eliminate? If so, that will likely considerably impact your long-term viability more than just shifting your investments around.

You should begin this process by separating your discretionary expenses from your non-discretionary expenses. Once you separate them, take a hard look at your discretionary list. 

You might have baked a bunch of discretionary spending into your annual expenses that you can reduce or skip during a down market. Look at big-ticket items like car purchases, vacations, home renovations, and other “wants.” 

Removing these items can feel disappointing in the short term, but remember, the tradeoff is increased portfolio health. You don’t necessarily have to cut out all those costs altogether. Maybe delaying six months to a year could be all you need to save thousands of dollars in market losses.

Say you consistently give money to your children each year. While this may be quite important to you, making annual exclusion gifts to your kids is ideal but not imperative. You might reconsider an expense like this in down years. Doing so puts your finances in a better position to rebound and retain their expected longevity.  

We can help you make your spending and saving deliberate and purposeful for your life long-term. 

A Path Forward

Market downturns can be alarming, especially if you retired early. You need your portfolio to support your lifestyle for several decades ahead. 

But down markets don’t have to signal disaster. We’ve helped many people take a strategic look at their portfolio, make wise selling choices, and create a strong spending plan that helps them weather market storms. We stand ready to help you figure out the best path forward, too. 

Call us to get started.

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