How to Protect Yourself from Stock Market Crashes in Retirement
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
The stock market has always gone through ups and downs, but when you’re retired, a downturn can feel much scarier than when you were working. Retirement alters the way you interact with your investments, and the strategies you use to protect yourself from market volatility must also adapt accordingly.
In this article, we’ll cover:
The difference between the accumulation years and distribution years
Why market downturns can be so damaging in retirement
The “irreversible mistake” retirees need to avoid
The risk of holding concentrated positions in retirement
Why being too conservative in retirement can also create problems
Accumulation vs. Distribution Years
One of the most important distinctions in retirement planning is understanding how your relationship with your portfolio changes once you leave the workforce.
Accumulation Years (Working Years):
During your career, you’re regularly contributing to retirement accounts. When the market drops, it can actually work in your favor because you’re buying shares “on sale.” Plus, you’re not taking withdrawals, so your full account balance is still in the market to participate in the rebound when it eventually happens.Distribution Years (Retirement Years):
Once retired, the dynamic shifts. Instead of contributing, you’re taking money out to fund your lifestyle. When a market downturn hits, withdrawals can force you to sell at the worst possible time—locking in losses. Unlike in your working years, your portfolio might not fully recover because the assets you sold are no longer invested when the market rebounds.
This difference makes retirees more vulnerable to something called sequence of returns risk, which is the risk of experiencing poor market returns early in retirement while simultaneously taking withdrawals.
The Irreversible Mistake
We call this the irreversible mistake—waiting too long to reduce your allocation to stocks and riskier asset classes post-retirement. Once those dollars are gone, there’s no “do-over button” to replace them, and trying to recoup the losses by staying overly aggressive can be too much of a gamble.
So, what’s the solution? It depends on:
The size of your retirement accounts
The percentage of income you need to withdraw each year
The purpose assigned to each investment account
For example, you might have a Roth IRA that you plan to leave untouched. Since you don’t need it for income, that account could stay invested more aggressively throughout retirement. On the other hand, accounts you draw from regularly may require a more balanced or conservative allocation to help weather downturns.
There’s no universal “right” equity allocation for retirees—it has to be determined account by account, based on your unique situation.
The Risk of Concentrated Positions
Another important consideration is whether you hold a concentrated position—a large percentage of your portfolio invested in a single stock or company.
During the accumulation years, an employee may accumulate significant shares of their employer’s stock, or investors may ride the success of a single company. Since you’re still working, contributing, and have decades before tapping retirement accounts, you may be able to absorb some of that added single stock risk.
During retirement, however, concentrated positions can pose an even bigger danger. At that point, it’s not just overall market volatility you’re exposed to, but also the unique risks of one company or business. If that single investment declines sharply—or worse, collapses—it could disproportionately impact your retirement security.
Diversifying concentrated positions before entering retirement may help reduce the risk of a single company determining the fate of your entire portfolio. Strategies such as gradually selling shares, using tax-efficient planning, or shifting portions of the concentrated holding into more diversified securities may all help manage that risk.
The Risk of Being Too Conservative
While it’s common (and often smart) to reduce risk in retirement, going too far in the opposite direction can create another set of problems.
People today are living longer—well into their 80s and 90s. That means a large portion of your retirement savings may remain invested for 15, 20, or even 30 years. If your portfolio is too conservative, you run two major risks:
Longevity Risk: You could outlive your savings because your money didn’t grow enough to keep pace with how long you live.
Inflation Risk: The cost of living rises every year. If your portfolio isn’t growing faster than inflation, your purchasing power declines over time.
For example, imagine someone retires and moves all their assets into bonds. While bonds may provide stability, they may not generate enough long-term growth to outpace inflation. Over decades, this could erode their ability to afford the same lifestyle.
Final Thoughts
Protecting yourself from stock market crashes in retirement isn’t about eliminating risk—it’s about managing it. That means:
Reducing volatility in the accounts you rely on for income
Avoiding the irreversible mistake of delaying the step down in risk post-retirement
Diversifying away from concentrated positions
Keeping enough growth in the portfolio to offset longevity and inflation risks
Every retiree’s situation is unique, and the best allocation depends on your income needs, time horizon, and goals. A thoughtful strategy that adapts as your life unfolds can help you weather market downturns while keeping your long-term financial plan on track.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
What makes market downturns more dangerous for retirees than for younger investors?
Retirees face greater risk during downturns because they’re no longer adding to their investments and must withdraw funds to cover living expenses. Selling investments during a market decline can lock in losses and make it difficult for a portfolio to recover.
What is sequence of returns risk, and why does it matter in retirement?
Sequence of returns risk refers to the danger of experiencing poor investment returns early in retirement while taking withdrawals. Negative returns early on can deplete assets faster, leaving less money invested to benefit from future market recoveries.
What is the “irreversible mistake” retirees should avoid with their portfolios?
The irreversible mistake occurs when retirees wait too long to reduce their exposure to risky assets after leaving the workforce. A severe market downturn early in retirement can permanently damage a portfolio if withdrawals and losses happen simultaneously.
Why are concentrated stock positions especially risky in retirement?
Holding too much of a single stock can expose retirees to the financial health of one company rather than the broader market. If that company’s value falls sharply, it can disproportionately harm retirement security and long-term income stability.
Can being too conservative with investments in retirement cause problems?
Yes. While reducing risk is important, overly conservative portfolios may not generate enough growth to keep up with inflation or sustain income over a long retirement. This can increase the chance of outliving your savings.
How can retirees balance growth and safety in their portfolios?
A balanced strategy often includes maintaining conservative allocations in income-producing accounts while keeping some exposure to growth assets for long-term needs. Adjusting investment risk account by account can help align stability with the potential for continued growth.
