3 Things to Do if the Stock Market Crashes as Soon as You Retire

Many people spend decades saving money for retirement. So once that stage of life kicks off, it's time to start spending the money you worked hard to sock away. But sometimes, bad timing can get in the way of your retirement plans.

If the stock market experiences a steep decline as soon as you retire, it can threaten the nest egg you worked hard to build and eventually put you at risk of running out of money. It's called sequence-of-returns risk, and it can derail an otherwise solid financial strategy.

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The problem with an early market crash in retirement is that if you continue tapping your IRA or 401(k), you'll have fewer assets left in that account once the market recovers. So it's important to know how to pivot in a situation like this. Here are three key things to do if you find yourself dealing with a stock market crash as retirement begins.

1. Avoid rushing to sell off assets

When your retirement account balance plunges, it can be tempting to start selling stocks and replacing them with safer assets. That's a bad idea, though. Locking in losses after stock prices have fallen could make it much harder for your portfolio to recover when the market rebounds.

History shows that the stock market has a tendency to recover from adverse events, but it can take time. If you sell your stocks right away, you won't be able to participate in that recovery. So rather than dump your stocks, try to identify assets in your portfolio that haven't lost value, and use those to generate income.

2. Reduce spending as much as possible

When your IRA or 401(k) loses value in a market crash, reducing spending could be your ticket to preserving your savings in the long run. The good thing about a market crash happening early in retirement is that you may have more spending flexibility, since you may not yet be locked into a given routine.

If you were planning to join a racquetball club, book a trip, and upgrade your cable, don't. Instead, try to limit your spending to basic needs plus a few modest extras, so you're withdrawing from your portfolio as little as possible while it's down.

3. Look for ways to generate additional income

Retiring only to have to immediately find work can be frustrating. But if there's a bad market crash right away, quickly securing part-time work could help you leave your portfolio untapped until a recovery happens.

If you're a brand-new retiree, chances are, you still have plenty of contacts in your former industry. Reach out and ask about consulting work to get some income flowing. And if that doesn't work, there's always the gig economy or a traditional part-time job.

You can also see if the time is right to claim Social Security. If you've reached full retirement age, which is 67 for anyone born in 1960 or later, you can claim your monthly benefits without a reduction.

Now it may be that you're old enough to collect your Social Security in full, but you were hoping to delay your claim for boosted checks. In that case, you'll need to weigh your options.

If you have enough assets in your portfolio that haven't lost value, you may be able to stick to your plan and wait on Social Security. If that's not the case, sacrificing boosted benefits could be your ticket to avoiding massive portfolio losses. You'll have to run the numbers to see what makes the most sense.

A stock market crash that coincides with the start of your retirement can be upsetting and nerve-wracking. But it doesn't have to result in financial ruin. Adapting to the situation and being flexible could allow you to preserve your savings and avoid a cash crunch later in life.

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