Navigating stock market volatility as retirement nears

[UNITED STATES] Following recent volatility in the stock market, many Americans are feeling anxious about the future of both the U.S. economy and their financial well-being. This sense of uncertainty can be especially concerning for those nearing retirement, who are preparing to leave the workforce and rely on their portfolios for day-to-day living expenses, according to financial experts.

Compounding the pressure, inflation continues to remain high, eroding the purchasing power of retirees who are on fixed incomes. The Federal Reserve’s efforts to curb inflation by raising interest rates have added another layer of complexity to the financial environment, making borrowing more expensive and leading to fluctuating market returns. For individuals approaching retirement, navigating these competing factors requires thoughtful planning and flexibility.

As financial planner Amy Arnott of Morningstar Research Services points out, the first five years of retirement represent a "danger zone" for those withdrawing funds during a market downturn.

“If you pull assets out of your account when the market is down, you’re leaving less money in the portfolio to benefit from any eventual rebound,” Arnott explained.

In 2025, an estimated 4.18 million Americans will turn 65, the highest number ever recorded in a single year, according to a January report from the Alliance for Lifetime Income.

This “Silver Tsunami” highlights the urgency for retirees to prepare adequately. Many people in this generation are among the last to benefit from traditional pension plans, meaning a greater portion of their retirement income will rely on personal savings and Social Security. With longer life expectancies, ensuring those funds last is more critical than ever.

However, experts argue that retirees can still protect themselves against market fluctuations. Lee Baker, a certified financial planner and owner of Apex Financial Services in Atlanta, reminds us that financial turmoil is nothing new.

“Market disruptions have happened before, and they will happen again,” said Baker, who serves on the CNBC Financial Advisor Council.

Whether facing market sell-offs driven by tariffs or another downturn, there are strategies to consider before retirement.

After years of stock market growth, it is essential to "protect your nest egg" by reassessing your risk tolerance and retirement timeline, said Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida.

According to recent research from Vanguard, investors who maintain a disciplined rebalancing strategy during periods of market turbulence tend to recover more effectively over time. The study showed that portfolios adjusted annually or semi-annually outperformed those left unchecked during volatile periods, emphasizing the importance of proactive rather than reactive asset management.

For those in their early 60s, experts recommend shifting to a more balanced portfolio, such as a 60/40 mix of stocks and bonds, depending on your risk tolerance and financial goals.

Alternatively, if market downturns are causing you stress, you may want to consider a more conservative allocation, Baker suggested. “It’s a good time for a ‘temperature check’ to ensure your portfolio still aligns with your risk tolerance,” he said. Generally, experts advise against selling investments during a market decline, particularly in the early years of retirement.

Known as “sequence of returns risk,” this phenomenon can significantly reduce your portfolio’s value early on, making it harder to recover when the market rebounds, research indicates.

One strategy gaining attention to mitigate this risk is the "bucket" approach, where retirees divide their savings into short-, medium-, and long-term categories. Short-term buckets hold cash and low-risk assets for immediate expenses, while longer-term buckets remain invested for growth. This strategy provides liquidity for day-to-day spending and allows exposure to market recoveries without forcing the sale of underperforming assets.

Certified financial planner Malcolm Ethridge, founder of Capital Area Planning Group in Washington, D.C., suggests that retirees keep enough cash on hand to cover at least two years’ worth of expenses as they approach retirement. This strategy provides protection against early market losses, as retirees can rely on cash reserves for living expenses while allowing their portfolio to recover.

In addition to financial protection, Ethridge notes a psychological benefit: having cash reserves can provide retirees with the confidence to spend from their portfolios, setting the stage for a more secure and comfortable retirement.