What Do I Do If The Market Crashes When I'm About to Retire?

About to retire or recently retired and worried a market drop could derail your plan? 

In this episode of The Perfect Retirement Plan?, Phillip Smith explains how to build a retirement strategy that still works when stocks fall. You’ll learn how sequence-of-returns risk hurts new retirees, why a 3–4 year cash reserve buys time, and how flexible “guardrails” withdrawals, smart rebalancing, and tax moves (loss harvesting, Roth conversions) protect your income plan. 

We also touch on Oregon PERS timing, Social Security, and IRMAA so your retirement planning is resilient in real life. 

What you’ll learn
 00:00 If your plan only works when stocks rise, it’s not a plan
 00:56 Roadmap and why this matters now
 01:15 Two-months-to-retire panic scenario
 02:08 What counts as a crash and sequence risk
 02:40 Recent drawdowns and recovery timelines
 04:29 Why sequence risk is brutal for new withdrawals
 05:15 Framework to make your plan “punch-resistant”
 06:19 Build a 3–4 year reserve from cash and short bonds
 07:58 Guardrails spending: small trims and raises
 08:43 Rebalance to buy stocks “on sale”
 09:05 Tax plays in down markets: TLH and Roth conversions
 09:29 Coordinating with PERS, Social Security, and IRMAA
 10:14 Contingency dials when markets fall
 11:32 Action steps you can do this week

Action step
Define your reserve target, check allocation quality, and write simple guardrails before you need them. Connect with a financial advisor if you need guidance with any of these action steps.

More resources: TidepoolWealth.com and our YouTube channel @TidepoolWealth.

#RetirementPlanning #AboutToRetire #RecentlyRetired #MarketCrash #SequenceRisk #Guardrails #TaxPlanning #OregonPERS #OPSRP #MedicareIRMAA

Thanks for tuning in to this episode of The Perfect Retirement Plan, and remember: it's not about having the smartest financial advisor, the most money saved, or the highest probability of retirement success. The perfect retirement plan, for you – is the one you act on.

Phillip Smith, CRPC AIF |  Financial Planner
Tidepool Wealth Strategies
450 Country Club Road, Suite 350 | Eugene, OR | 97401

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Additional Disclosures: 
The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. 

Transcript

00;00;00;00 - 00;00;33;11
Phillip Smith, CRPC AIF
If your retirement plan only works when stocks go up. It's not a plan, it's hope. And it's on a head on collision with reality. Hi, I'm Philip Smith, financial planner with Tidepool strategies, helping people close to retirement create a tax smart, dynamic retirement planning strategy with clarity and confidence. Welcome to a perfect retirement plan. Working through your retirement planning or getting close to retirement, maybe 4 to 5 years out and comparing retirement strategies to try and build a defensive plan for your first few post-work years.

00;00;33;14 - 00;00;56;01
Phillip Smith, CRPC AIF
If the market plummets days before you retire, your plan should still work. And what if the market drops just right before you retire? What if do you delay your retirement date? Do you cut spending? Or do you try to earn back what you have lost by taking on more risk? Today, I'll show you how to build a plan that can take a punch and keep moving forward.

00;00;56;04 - 00;01;14;20
Phillip Smith, CRPC AIF
Here's what we're going to look at in the tide pool today. First, a quick story and why this matters right now. Then we'll define what a crash is and talk about sequence of returns. After that I'll walk through how I guide clients so their plan can handle a sudden downturn. And we'll finish with simple action steps you can take this week.

00;01;14;22 - 00;01;43;02
Phillip Smith, CRPC AIF
All right. So let's cover a quick scenario. Let's let's say it's two months before your target retirement date. And you call your financial advisor panic because the headlines are screaming loud. This is really identifiable. Just a few short months ago, April 2025, markets were down a lot. Very very quickly. So your retirement account is down double digits. Now you may ask your advisor, do I have to delay retirement longer?

00;01;43;04 - 00;02;07;29
Phillip Smith, CRPC AIF
Hopefully your financial advisor pulls up your plan and confirms your cash needs. Everything's covered. They look at the income guardrails. Everything's in place. They look at whether or not you are ready to rebalance if needed. That's ready to go. There should be almost zero delay, and you should be ready to draw Year One's income from a safe, readily available cash reserve, helping you stick to your retirement plan even when the market does what it does.

00;02;08;02 - 00;02;40;08
Phillip Smith, CRPC AIF
So we talk about market crash or a market pullback or a downturn. But what does that really mean? Let us put plain words to this. A crash is a fast and steep drop. Think a loss of 15 to -20%, maybe even more. It can seem scary because it feels sudden, but drops are part of market life. If you retire in a market drop without a plan, you may sell low to fund your income needs or spending that can drain the portfolio faster.

00;02;40;10 - 00;03;06;02
Phillip Smith, CRPC AIF
Now, if you retire with the plan, the drop is a stress test you've already trained for. Here's some real life examples of what that's look like. Using the S&P 500 price index as a reference. Most recently, we had the 2025 tariff shot from a market peak February 19th to a low on April 8th, roughly a 17% downhill slide, about seven weeks of decline.

00;03;06;04 - 00;03;30;28
Phillip Smith, CRPC AIF
And from there took 80 days to hit a fresh new record high on June 27th. Do you remember 2022? Who can forget it? The inflation bear a market peak on January 3rd of 2022 to the low point on October 12th of 2022. That is a long extended period of time to be sliding down the hill. It was about a 25 percentage point drop.

00;03;31;01 - 00;03;58;10
Phillip Smith, CRPC AIF
Took nine months to get to the bottom and then 15 months to hit a new high on January 19th of 2024. And then a third most recent example of how markets just do what they do. The 2020 pandemic crash, from a peak on February 19th of 2020 to the low on March 23rd, but a 34% drop. Less than five weeks to that bottom, five weeks and a 34% slide.

00;03;58;12 - 00;04;28;29
Phillip Smith, CRPC AIF
And then five months later, a new high. August 18th of 2020. Here's the takeaway. Drops can arrive fast, or they can be a long and progressive decline. Recoveries can be relatively quick or very prolonged, but historically, markets drop quickly and don't bounce back as quickly as they sell off. Your retirement income plan should let you avoid selling the stuff inside your portfolio that offers growth potential during the market fall, and give that stuff time to recover.

00;04;29;02 - 00;04;51;16
Phillip Smith, CRPC AIF
There is real risk in a bad sequence of returns. It's literally called sequence of returns risk. Average returns do not arrive on a neat schedule. The order of positive or negative returns matters a lot when you are taking withdrawals distributions from your retirement account. A bad first two years can bite much harder than the same bad years later on in retirement.

00;04;51;22 - 00;05;15;22
Phillip Smith, CRPC AIF
That is sequence of returns risk or sometimes called sequence risk. The defense is simple in theory. Don't sell growth assets at the worst time. Use cash and bonds to buy time. Then let your growth sleeve recover before you tap it again. Now here's how I generally guide clients through this. It's a framework I use with people who are close to retirement.

00;05;15;27 - 00;05;38;22
Phillip Smith, CRPC AIF
And remember, even a plan doesn't ensure you won't experience losses. All investing involves risk, including the possible loss of principal, the amount you put in. We start by reviewing the current portfolio. How much risk is built in? Is it appropriate what you want to accomplish? Is the risk level appropriate for when you begin drawing on this account for income?

00;05;38;25 - 00;05;58;02
Phillip Smith, CRPC AIF
Are we applying different investment strategies based upon the account type? Roth IRA, traditional IRA, taxable account. And we're trying to also make sure that we're matching that up to your goals. We work through this. And for the sake of not getting too deep in the process, let's assume we've already looked at your cash flow and know your income needs from month to month.

00;05;58;05 - 00;06;19;00
Phillip Smith, CRPC AIF
Knowing the income need, I would argue, is more important in measuring the risk and potential growth of your portfolio. You can check out the episode on the income replacement rule for more on that topic. Because once we know how much we need from our retirement portfolio, we can determine liquidity needs. What do we need to have in cash or cash like vehicles?

00;06;19;03 - 00;06;44;10
Phillip Smith, CRPC AIF
When I work through this with a client, I recommend setting aside a pool of reserves. Essentially, money market, short term bonds and a little cash. This should total 3 to 4 years of distribution needs. The only job of this reserve pool is to enable you to keep taking income distributions without selling stocks during a market drop. It creates stability in the portfolio and buys us time while we wait for a market recovery.

00;06;44;12 - 00;07;11;25
Phillip Smith, CRPC AIF
Clients know there's a plan. Their perspective on risk shifts. I had a client who came in for a meeting in April this year, two days before the market bottom. By employing this reserve bull strategy. We'd moved her from an ultra conservative retirement portfolio that had been averaging just over the historical inflation average, around 3% per year, into a moderate allocation portfolio, about 50% stock and 50% bond and other stuff.

00;07;11;27 - 00;07;35;18
Phillip Smith, CRPC AIF
So she comes in very much stressed thinking her retirement account was down more than 10% because the news was telling her the world was ending, all due to tariffs. Her account had not even lost 2% because she had a well thought balanced portfolio and three years of distributions sitting in a money market fund, earning at that time over 4.5%.

00;07;35;21 - 00;07;58;07
Phillip Smith, CRPC AIF
And I reminded her that if anything was sold, it would come out of the money market fund first and for the next three years. She left our meeting relieved. And that is the power of planning ahead. Now, in addition to that cash reserve pool, we guide clients on how to use a flexible withdrawal plan with guardrails in simple terms.

00;07;58;10 - 00;08;21;03
Phillip Smith, CRPC AIF
You start with a target monthly distribution amount. If the portfolio falls below a pre-set line, say, a 15% decline in total portfolio value, we dial spending down a touch. If it climbs above the upper line, say a 15% increase. Give yourself a little raise. Small moves made early helped to protect the plan. Big cuts made late are no fun.

00;08;21;05 - 00;08;43;08
Phillip Smith, CRPC AIF
We try to avoid extremes like that, and we set some boundaries ahead of time so that during market drops, we have a plan for how we will interact with the client portfolio. If stocks fall far enough that the mix goes off target, we rebalance from bonds and new cash to buy stocks while they are down. Sometimes this is referred to as buying them when they're on sale.

00;08;43;10 - 00;09;05;20
Phillip Smith, CRPC AIF
We truly believe they're on sale. Think of it as keeping your plan honest, trying to take advantage of market imbalances. And on that, market declines aren't all bad, especially if you're prepared for them. You know, let's talk tax moves in down markets because bear markets can be a tax planning gift. We look at the potential for tax loss harvesting in taxable accounts.

00;09;05;28 - 00;09;29;13
Phillip Smith, CRPC AIF
Meaning if we can sell something for a loss in the portfolio and offset gains from another investment, and will utilize that to try and create some tax relief when possible. We also consider Roth conversions. If your income drops that year, lower account values can let you move more shares into the Roth for the same tax loss or for a reduced tax cost.

00;09;29;15 - 00;09;50;25
Phillip Smith, CRPC AIF
And in all of this, we place a focus on bidding moves to your bracket tax bracket and watching that Medicare Irma line pension and social Security timing also come into play during bad market years. If you have a pension like organ purrs, or if you can delay Social Security for a higher future benefit, that income can act like a floor.

00;09;50;27 - 00;10;14;10
Phillip Smith, CRPC AIF
Sometimes we bridge a few years with a stability fund and let those guaranteed checks grow. That lower stress on the portfolio while markets reset. But other times, when markets are bad and maybe a client simply doesn't have a long enough cash runway, being able to turn on that income benefit, Social Security or BRS in delay, having to sell investments for a loss.

00;10;14;13 - 00;10;39;14
Phillip Smith, CRPC AIF
Now, finally, maybe not the last lever, but the last thing we'll touch on today. There are quite a few contingency dials we can turn, and we set these dials before you retire. But market crash hits. You already know what to do. First. Dial pause those big one time expenses like the RV purchase or the new kitchen makeover. Maybe we can push those out 6 to 12 months.

00;10;39;16 - 00;11;07;13
Phillip Smith, CRPC AIF
Second interim optional travel or gifts for one season. Keep the core spending steady. Third, you can take from cash and short bonds. First, defer equity or stock sales until the mix starts to recover or has fully recovered. Fourth, you can refill the stability fund or that cash reserve, or during market rebounds. You do not wait. And fifth, if needed, add some part time income for a short season.

00;11;07;15 - 00;11;31;29
Phillip Smith, CRPC AIF
A small income bridge can do a lot to extend the life of your portfolio. Now, I've loaded you up with tons of knowledge in a short amount of time. Let's take some action on this. First, define your cash reserve pool. List your monthly financial need after fixed income sources. Multiply it by 36 or 48 months. That is your target reserve.

00;11;32;02 - 00;11;51;08
Phillip Smith, CRPC AIF
Second, check your allocation. Do you have enough high quality bonds to cover the first 3 to 5 years of plan withdrawals when combined with cash? And I say high quality bonds, but this could be a money market fund. This could be, you know, short term treasuries. Maybe you're mixing in some municipals if this is in your taxable account anyhow.

00;11;51;09 - 00;12;12;12
Phillip Smith, CRPC AIF
Third, write down simple guardrails. What is the lower line that triggers a small spending trim. And what is the upper line. And I'm talking about portfolio value. That allows you to give yourself a small raise if you want help working through and building this. Sit down with a financial planner who will model it for you and help you think through those numbers.

00;12;12;14 - 00;12;33;18
Phillip Smith, CRPC AIF
If this help, subscribe and share it with a friend who is close to retirement. We are here to help you move from knowing to do it. And remember, it's not about having the smartest financial advisor, the most money saved, or even the highest probability of retirement success, whatever that means. The perfect retirement plan for you is the one you act on.

00;12;33;21 - 00;12;48;12
Phillip Smith, CRPC AIF
It’s disclosure time! This podcast is intended for educational purposes only and should not be used for any other purpose. The views depicted in this material should not be considered specific advice or recommendations for any individual, are not intended to be financial, tax, or legal advice and are not representative of Tidepool Wealth Strategies or Cetera Wealth Services LLC. The opinions contained in this material are those of Phillip Smith, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.  For a comprehensive review of your personal situation, always consult with a financial, tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice. 
Our office address is 450 Country Club Road Suite 350 Eugene Oregon 97401. Securities offered through Cetera Wealth Services, LLC, member FINRA/S I P C. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.