Which 3 Questions Should You Ask Before Retiring in a Bear Market?

We're not in one right now, for the record. We're not even at any immediate risk of slipping into one anytime soon. Given that one's bound to eventually surface though -- and that it's better to make a plan before it does -- are you prepared for the possibility that you just might begin your retirement in the midst of a bear market?

To this end, here are three questions you might want to ask yourself now, and then ask yourself again when the time comes, just to ensure you're as ready as you can be. Of course, the sooner you ask these questions, the more time you'll have to ensure you're able to steer your portfolio through a rough patch while you're subtracting from your nest egg rather than adding to it.

1. Do I have enough cash to last through the entire lull?

The biggest, most immediate risk of retiring during a bear market is also the most obvious one: It might force you into selling assets at relatively low levels to provide the retirement income you need. But doing so could lock in poor exit prices; it may even lock in losses.

The solution to the problem, however, is as obvious as the risk: making sure you're never in a position where you might be forced into making a sale at a price you don't like in the first place. This means making sure you've got enough cash available to let you live through a bear market without making any knee-jerk exits.

This figure will of course be different for everyone, influenced by factors like the amount of Social Security income you're also collecting, or perhaps how much dividend income you're reliably getting from stocks held specifically for this purpose. You'll need to figure out a number that specifically works for you. Whatever the case, the rule of thumb is to hold about two years' worth of cash.

Most bear markets don't last that long, to be clear. Mutual fund company Hartford says the average bear market lasts 9.6 months; brokerage firm Charles Schwab puts the figure at 14 months. You just want to give yourself a little extra cushion so you don't make any panicked decisions after the end of a bear market and during the beginning of a bull market, when things are still a bit wobbly.

Of course, you'll likely need to replenish your two-year safety stash as you deplete it during this time. That's not the end of the world, though. If you've got the time, you can often shop around for reasonable exit prices in the midst of a bear market.

2. Am I positioned properly for a turnaround (whenever it happens)?

While you want to think defensively during downtrends, you can absolutely think too defensively, leaving yourself unprepared for turnarounds that take shape with little to no warning. And this is a critical time to be in the market, positioned for whatever long-term growth you're expecting from your portfolio in retirement.

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See, some of the market's very biggest gains take shape right at the onset of a new bull market, often before most investors have the guts to believe what they're seeing. Hartford adds that more than one-fourth of the S&P 500's very best days since 1995 happened during just the first two months of a new bull market. Separately but similarly, Hartford reports that the average gain during just the first month of a new bull market is 13.6%, with an average advance of 25.3% during the first three months of a new bull market.

Those early recovery gains are too important to miss out on simply waiting for absolute certainty that a new bull market is actually underway. This means you must remain invested in your goals -- all of them, short-term and long-term -- at all times, even when it's uncomfortable.

3. Do I actually have a plan for my retirement money that works?

Asking and answering the first two questions raises a third one that's arguably just as important: Do you actually have a specific, structured plan for your retirement savings and retirement income that makes sense for you? You might be surprised how many people have never given it much (if any) thought, even in retirement. A bunch of people are just "winging it."

The idea shouldn't intimidate you, since these plans don't need to be complicated. They'll ideally be simple, in fact, since simpler plans are easier to implement. Your plans should be as specific as possible. Ask yourself:

• In addition to your two years' worth of cash needs being readily accessible, do you have a portion of your portfolio specifically intended to constantly generate income to replenish this stash as you use it?
• If you own bonds or other fixed-income instruments, have you staggered their maturity dates to help curb the impact of any sharp drops in interest rates?
• Is there a portion of your money that remains earmarked for long-term growth that you can leave alone for at least five years, and can you actually comfortably do so?
• Or, do you realize you've got a few too many all-or-nothing kind of trades?

At this stage of your life, every dollar of your retirement savings should serve a clearly defined purpose without posing more risk than absolutely necessary. And like it or not, this may be something where you're best served by deferring to qualified experts familiar with situations like yours. As always, bear in mind that successful investing often starts with simply asking the right questions.

Charles Schwab is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short March 2026 $100 calls on Charles Schwab. The Motley Fool has a disclosure policy.