4 Questions Workers Should Ask Before Retiring in a Bear Market

If you're nearing retirement and watching your retirement accounts take a swan dive, I feel your pain. My husband is about 48 months away from his dream retirement date, and while I have no desire to retire, I do want it for him. However, it's impossible to ignore the fact that the U.S. stock market has experienced more than $11 trillion in lost value since January.

A bear market is officially declared when the S&P 500 declines 20% from a recent high. Given that it's fallen 18% as of this writing, it's clear we're knocking on the door. If, like my husband, you're closing in on retirement, here are four questions to ask yourself (we'll do the same).

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1. Do I have any nonmarket assets to tap into?

When you sell shares to cover everyday expenses, those shares are gone forever. As the market recovers, you have fewer shares available to gain in value. On the other hand, if you have another asset to tap into for the cash you need and can avoid taking more than necessary from your portfolio, the shares left are positioned to grow with the market as it swings back into bull territory.

Consider any available cash sources, like a high-interest savings account, money market fund, CD nearing maturity, or the cash value in a permanent life insurance policy. The goal is to give your portfolio the room it needs to recover along with the economy.

2. How's my asset allocation?

"Asset allocation" refers to the percentage of different investments you have. The right mix of stocks, bonds, cash, and other investments depends on your goals and risk tolerance. If you have nerves of steel and are nearing retirement heavy in stocks and stock funds, history shows that you're likely to do quite well over the long term. However, your losses during a bear market are going to be more dramatic.

There's no one-size-fits-all when it comes to asset allocation, and if you ask 20 financial advisors for their preferred allocation for those nearing retirement, you're likely to hear 20 different answers. Take a look at your allocation to determine how comfortable you are with where you are. Then, schedule a visit with a financial advisor who can run different scenarios to help you find an allocation that will carry you through the current market.

3. How do I feel about delaying retirement -- at least until the market is on the mend?

If your portfolio is taking a beating, take a moment to consider whether you want to work a little longer to make up for the loss. There's no shame in answering no to that question, particularly if you've spent years dreaming of retirement. However, if staying on the job for another year or two is feasible and you're physically and emotionally up to the rigor, you'll buy more time for your portfolio to recover. Depending on your age, it may also increase the amount of Social Security you're eligible to receive.

4. Have I reworked my budget based on the new reality?

Even four years out, I find myself reworking the budget I anticipate using when my husband drops his briefcase in the mudroom for the last time. Instead of worrying about whether you'll have enough money, put together a budget that fits the current circumstances. That may mean postponing a big vacation or cutting back on non-essentials for a time.

However, do not allow cutbacks to discourage you. Consider this: The average bear market lasts 289 days, or 9.6 months. However, the average bull market lasts 965 days, or 2.6 years. Cuts to your budget are likely to be temporary.

As you wait for the market to regain its glory, take care of yourself both physically and emotionally. I'm using this time to eat healthier, read more, meditate, and learn to play the guitar. It took me about five minutes of negative market news to decide that I could either wallow in it or turn my focus to the short list of things I can control in life.

The bottom line is this: If it feels as though someone took an X-acto knife to your portfolio, furiously slicing away at it, you're not alone. It's time for all of us to take a deep breath. While the rapid tumble from a vibrant bull market into bear territory is certainly unsettling, the U.S. has weathered plenty of bear markets before (27, to be precise). In fact, anyone who spends 50 years investing will probably experience about 14 bear markets, according to Hartford Funds.

None of it may be easy or pretty, but it is possible to thrive -- even in a bear market.

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