6 Questions You Should Ask Before Retiring During a Bear Market

Key Points

• Bear markets come and go.

• Retiring while your stock portfolio is down can be scary.

• Building a cash reserve can help you weather a bear market with ease.

• The $23,760 Social Security bonus most retirees completely overlook ›

If you've ever wondered why economists frequently worry that a bear market is coming, it's because they are such a regular part of the economic cycle. A bull market for an index is declared after it increases by 20% or more and hits a new high. A market enters bear territory when it drops by 20% or more from its most recent high.

According to The Hartford Fund, if you spend 50 years of your life investing, you will experience around 14 bear markets. They come and they go. While it's not always a lot of fun while it's happening, it's not the end of the world (or your portfolio).

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Retiring during a bear market can seem scary, so before you do, ask yourself the following questions.

Image source: Getty Images.

1. How do my current finances look?

Specifically, take a look at:

• Savings accounts: Do you have enough in an emergency fund to cover at least three to six months' worth of bills?
• Investments: How is your portfolio looking? Have you hit your savings goal, or do you need to pad the account by working longer? If the bear market continues, your stocks could keep dropping.
• Debts: Are you still carrying a lot of debt? It's particularly important to focus on high-interest debt, such as credit cards.

2. How much do I need to cover expenses?

Estimate your monthly living expenses, including housing, groceries, utilities, transportation, and leisure activities. Don't forget to factor in potential healthcare costs (including Medicare premiums and copays). If your expenses are high, you might not be able to afford to retire while your portfolio is down.

3. What are my expected sources of retirement income?

Add up all expected sources of income, including Social Security, pensions, annuities, rental income, dividends from investments, income from side businesses, and withdrawals from retirement accounts.

Once you know your monthly expenses and have added up your income sources, you'll have a good idea of where you stand and if you can afford to retire while the market is in a down period.

4. Do I have an available cash reserve?

Do you have a cash account to draw from during the worst of a bear market while the value of your portfolio assets is low? A bear market is the worst time to withdraw money from your portfolio for two reasons:

1. You have to sell more assets to come up with the money you plan to withdraw.
2. You'll be taking out money you could use to buy stocks that have dropped to bargain territory.

So you'll want to tap your cash.

5. What am I willing to postpone, if needed?

Before you ever have to think about whether to retire during a bear market, think about what you could postpone if you had to in order to bolster your finances.

For example, if you plan to add an addition to your house the year a bear market occurs, decide whether you can put it off for another year or two (the average bear market lasts 13 months). Or you might decide you can postpone a big trip or the purchase of a new car until the market recovers. The important thing is to have an idea of what needs to be paid for now and what can wait.

6. Can I work longer?

There's no shame in looking at your portfolio, considering your current financial situation, and deciding you're not quite ready for retirement. Working for even two or three more years -- if you're able to -- can significantly enhance your security by giving you time to save more, postpone withdrawals, and increase Social Security benefits.

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