How to Protect Your Retirement Assets From a Market Crash
If you are in your late fifties or early sixties, you have probably watched the market go through some rough stretches. The 2008 financial crisis, the COVID drop in 2020, the 2022 decline — each one was frightening in its own way. When you are decades from retirement, a market dip is uncomfortable but manageable. You have time to wait it out.
When you are close to retirement — or already there — a market drop feels different. And it should. The timing of a downturn, relative to when you start withdrawing from your accounts, can have a lasting effect on how long your money lasts.
This article explains why that timing matters so much and describes some of the honest, well-known approaches people use to reduce that risk. We are not going to recommend a specific strategy or tell you how to manage your portfolio — we hold no securities registration and do not provide securities advice. The goal is to help you understand the concept so you can have an informed conversation with a qualified professional.
The Problem: Sequence of Returns Risk
There is a concept in retirement planning called "sequence of returns risk." It refers to the order in which market gains and losses occur — not just the average return over time, but when those returns happen relative to your withdrawals.
Here is why it matters:
Imagine two retirees, both starting with the same account balance and the same average annual return over 20 years. The only difference is the order of the returns.
- Retiree A experiences a steep decline — say, 15% — in the first two years of retirement, followed by years of steady gains.
- Retiree B experiences years of steady gains first, and the same 15% decline does not arrive until years 10 and 11.
Even though both retirees have the same average return over the full period, Retiree A's account may be depleted far sooner. The reason: when you are withdrawing money during a downturn, you are selling more shares at lower prices to generate the same income. Those shares are gone — they cannot recover when the market eventually rebounds.
This is not a hypothetical scenario designed to scare you. It is a well-documented pattern that retirement researchers have studied for decades. The timing of market declines, relative to when withdrawals begin, can make a real difference in how long a portfolio lasts.
Why the Years Just Before and After Retirement Matter Most
The period sometimes called the "retirement red zone" — roughly the five years before and the five years after you stop working — is when sequence risk is highest. This is the window where a market decline can do the most lasting damage, because you are about to start (or have just started) drawing down your account.
If you are still working and contributing, a market dip is actually an opportunity: you are buying in at lower prices. But once you switch from contributing to withdrawing, that dynamic reverses. You are no longer buying low — you are being forced to sell low.
Approaches People Use to Reduce This Risk
Several strategies are commonly discussed in retirement planning literature. None of them eliminates risk entirely, and none is right for everyone. Each has trade-offs.
1. Build a Cash or Short-Term Reserve
The idea here is to keep enough in liquid, low-volatility holdings to cover your living expenses for one to five years, so you are not forced to sell longer-term holdings when the market is down. One common version suggests one year of expenses in cash equivalents and another two to four years in short-term, high-quality bonds or bond funds.
This gives the rest of your portfolio time to recover from a downturn before you need to tap it.
2. Adjust Withdrawals During Downturns
Some people adopt flexible withdrawal rules: when the market is down, they reduce their spending or skip inflation adjustments. The math behind this is straightforward — smaller withdrawals during a downturn mean fewer shares sold at depressed prices, which leaves more of your portfolio intact to recover when the market rebounds.
3. Maintain Diversification Across Asset Types
A portfolio spread across different types of holdings — not just one category — may experience less overall volatility than one concentrated in a single area. Diversification does not eliminate the possibility of loss, and no approach can guarantee that a portfolio will not decline in value. But spreading holdings across categories with different risk profiles is a widely accepted way to manage overall risk.
4. Consider Steady Income Sources
Some retirees use income sources that are not tied to market performance to cover their essential expenses. These include Social Security, pensions (for those who have them), and certain types of annuities.
An annuity is a contract with an insurance company. Depending on the type, it can provide a stream of payments that is not directly tied to stock market performance. Any guarantees under an annuity contract are subject to the claims-paying ability of the issuing insurance company — that is an important qualifier to understand.
Having a baseline of income that does not fluctuate with the market can reduce the pressure to sell holdings at a loss during a downturn. Whether an annuity makes sense for you depends on your full financial picture, and that is a conversation to have with a qualified professional.
5. Delay Retirement or Work Part-Time
Some people choose to work a year or two longer, or transition to part-time work, to allow their portfolio more time to grow and to delay the start of withdrawals. This is not always possible or desirable — health, family obligations, or job availability may not permit it. But where it is an option, extending your earning years is one of the most effective ways to reduce sequence risk.
What This Means for You
If you are within five years of retirement — or already there — the concept of sequence risk is worth understanding, even if you never experience a severe downturn. Knowing that the timing of market declines matters, not just the average return over time, can help you think differently about how your retirement accounts are positioned.
We cannot advise you on how to allocate your portfolio, and we do not provide securities advice. What we can do is explain how annuities work — what types exist, how they function, and what role they may play in creating a steadier income stream that is less exposed to market swings. That conversation is educational, not a recommendation.
Talk to Our Team
If you want to understand how annuities fit into a retirement income strategy — or simply have questions about reducing market risk as you approach retirement — we are happy to talk. No pressure, no product pitch.
If you'd like to do that, talk to our team — book a growth audit here.