What Should Retirees Know About Navigating Retirement During a Bear Market?

Going through a bear market as a retiree can be daunting. In fact, it may be the biggest fear for most investors. At least when you're working, you've got some job-based wages coming in. When you're mostly living on your retirement savings, even a temporary threat to your nest egg poses a risk of permanently crimped retirement income. The prospect shouldn't be taken lightly.

As Franklin D. Roosevelt so brilliantly put it, though, "the only thing we have to fear is fear itself." If retirees know what to expect and what to do -- and not do -- before and during a bear market, they can navigate right through them and come out OK in the end.

With that as the backdrop, here's what you'll want to know before the time comes.

1. Bear markets are irritating but rarely devastating

Yes, a bear market is technically defined as any pullback of 20% (or more) from a market peak. However, the average bear market sell-off is usually closer to 30% from a high. That's not chump change by anyone's standards.

It's also not catastrophic, particularly if you understand everything else there is to know about a bear market, like...

2. Most bear markets are actually fairly short-lived

The numbers vary from one source to another, but on average, the data suggest that the typical bear market lasts somewhere between 10 months and 14 months. Certainly they feel like they're dragging on for far longer when you're in the midst of one. But the math says what it says.

The catch? Contrary to much of the rhetoric during these rough patches, nobody really knows when a bear market is going to end. Plus, they all end differently. Some with a whimper, easing into a slow recovery effort. Others end with a clear, decisive capitulation.

And this presents a potential problem for active market watchers.

3. You want to be fully invested at the end of a bear market

Plenty of investors say they're going to get out of stocks while the bear is growling, with plans to plow back in again once a new bull market is back underway. A handful of lucky investors occasionally even get this timing right.

By and large, though, the risk of this particular plan isn't worth it.

Image source: Getty Images.

See, some of the market's biggest and best gains are made in the earliest days of a new bull market, when most investors are still on the sidelines, hesitant to trust the budding recovery effort. Data gathered by mutual fund company Hartford indicates that stocks gain a healthy 13.6% during the first full month of a new bull, on average, and rally 25.3% during its first three months. Trying to jump back in even just somewhere near the bottom could mean missing out on more gain than you can afford to miss.

4. You can't predict bear markets, so plan for them beforehand... not during

In the same sense you can't predict the end of a bear market, you can't predict their beginning either. You have to be prepared for them before they materialize. Doing so after the fact is typically too late.

What this means in practical terms for all investors is maintaining a portfolio that performs well enough in bullish environments, but also holds up well enough in bear markets. Retirees are no exception.

Except, retirees have one additional consideration. Given that bear markets reliably happen once every three to four years, it makes sense for anyone living on their retirement savings to hold up to a couple years' worth of cash needs at all times just so you aren't forced to sell anything during a bear market that you don't actually want to sell.

5. Remember you're still investing for the future more than the present

In this same vein, as tempting as it is to completely retool your portfolio's allocation to handle a bear market, doing so would ultimately be a misstep. The same stocks that tend to perform well in bearish environments don't necessarily do so when things are bullish, while some of a bear market's biggest laggards will soar during bull markets. Too much tinkering typically does more harm than good.

So, don't necessarily be afraid to cut bait on your less-promising holdings even if it means locking in a loss. Conversely, don't be afraid to stick with or buy beaten-down names with long-term promise. Unless your timing is perfect, again, you actually risk undermining your performance by forgetting that investing is still largely a long-term endeavor.

6. You actually might need to adjust your lifestyle spending

Finally, although you may not want to hear it, there's a distinct possibility that you might be better off curtailing your spending during a bear market, if not doing so threatens to chip away at too much of your principal.

There'd certainly be no shame in making such a temporary adjustment -- plenty of people do. Indeed, a recent survey of insurer Nationwide's customers indicates half of all U.S. retirees have recently cut back their spending on discretionary items, while one out of three retirees have dialed back their outlays on essential goods. And we're not even in a bear market! It's just a reflection of the modern-day reality it would be crazy to ignore, particularly if you're on a budget like most of your fellow retirees. You just need to find the cuts that make the most sense for you.

The Motley Fool has a disclosure policy.