Retiring in a Bear Market

Retiring in a Bear Market: The Conservative Approach

You’ve heard it here before: “It’s about time in the markets, not market timing.” Is that still true, though, when you’ve retired and are beginning to draw down your nest egg? What about that worst-case scenario—retiring just before a long-term decline in the stock market? Can your portfolio recover?

We decided to find out. In our Bear Market Case Studies, we’re looking back at one of the longest, steepest market declines in recent history—the drawdown sparked by the Great Financial Crisis—and examining outcomes for retirees with varying approaches to risk.

Case Study #2: The 40/60

Imagine you’d retired in October 2007 with a portfolio of $1 million meant to last you through retirement. That very month, the stock market began a plunge that would decrease valuations more than 50% over the next 16 months. We recently reviewed how an investor taking a standard 60/40 approach—that is, investing 60% of their portfolio in stocks, 40% in bonds—would have fared during the crisis.

But what if you were more cautious than the typical investor, and had taken the sensible step of rebalancing your portfolio to focus on steady income in retirement? What if instead of leaving the majority of your portfolio’s assets in the volatile stock market, you had switched to allocating 60% of your portfolio to fixed income, and left a smaller, 40% slice in stocks? How much would it help you to hunker down as you prepared for retirement?

In that case, it would have made a difference. Assuming our retiree withdrew $3,500 a month from their nest egg for expenses, a typical 60/40 portfolio allocation would have stayed in the red for 53 months before recovering. The more conservative 40/60 portfolio shaves 10 months off that time, bouncing back in 43 months, or just over three and a half years. If you adjust your withdrawal amounts to account for inflation, as many retirement experts recommend, that timeline increases, but only moderately. With a flat $3,500 withdrawal, the portfolio bounced back by September 2012; with an inflation-adjusted one, the portfolio was back to its starting point in February 2013.

Retiring in a bear market
Note: Chart shows impact of the global financial crisis on a $1 million portfolio invested 40% in Vanguard Admiral Total Stock Market Index and 60% Vanguard Admiral Total Bond Market Index (rebalanced monthly) using monthly returns from 10/31/2007 through the account’s recovery to $1 million (2/28/2013 for the Inflation-Adjusted Withdrawals line). The Consistent Withdrawals line used a rate of $3,500 a month and Inflation-Adjusted Withdrawals started at $3,500, and adjusted each month for historical inflation. Sources: Adviser Investments, The Vanguard Group, Bloomberg.

The difference in those timelines demonstrates why we often call bonds the ballast in your portfolio: Their inclusion helps steady your course even during the worst of the market’s storms. At the lowest point in the GFC, bond indexes dipped about 4%—compare that to the more than 50% decline in the stock market. That’s why it can make sense to reduce risk as you enter retirement, a time of life when being able to rely on a steady income stream is generally more important than maximizing growth potential.

But if that’s the case, you may wonder why you wouldn’t simply convert to a completely fixed-income portfolio as retirement approaches. By the time the stock market hit its low back in ’09, after all, the bond market had not only recovered but was up 6%. The answer is this: Losing money on your investments isn’t the only risk retirees face. As advisers, we must help clients prepare to handle the risk of outlasting your money as well. A pure fixed-income portfolio can struggle to outpace inflation when rates are rising (an issue we’ll consider in greater depth in a forthcoming Bear Market Case Study).

Client Data Stolen From Fidelity and Vanguard’s Printer in Hack

Late last year, Vanguard ran into technical troubles producing its year-end client statements. The cause? The third party that prints its statements, Chicago-based R.R. Donnelley, had been hacked. And while Vanguard clients suffered the biggest delays in getting the situation resolved, the Malvern, Pennsylvania, firm wasn’t the only fund giant impacted by the Donnelley affair. Fidelity is a client of the printer as well.

Now new information has come to light about the hacking incident: R.R. Donnelley informed regulators in several states that residents’ identity info, including Social Security numbers, was stolen. At least 1,310 Iowa residents and 998 Massachusetts residents were impacted. People in Washington, Texas, Michigan, California and Tennessee were also affected, though exact numbers are not available for those states. R.R. Donnelley’s law firm, Perkins Coie, has sent letters to the individuals it identified as having their data compromised.

No public statement has been made by the printer, Vanguard or Fidelity clarifying whether statement information was among the hijacked data accessed by the criminals. But considering the amount of valuable financial info included on a typical year-end statement, it’s reasonable to check your credit report if you ran into trouble accessing your statement last December.

Chart of the Week: Service Sector Sails Along

By Charlie Toole, Vice President, Portfolio Manager 

The folks who run service businesses around the U.S. aren’t buying the recession story. Instead, according to surveys conducted by the Institute for Supply Management (ISM), they’re saying the economy continues to expand.

Every month, the ISM surveys over 300 purchasing managers and executives from 60-plus industries to get a read on the health of the service sector. This includes everything from restaurants and wealth advisers to health care providers and hotels—in all, more than 70% of our economy.

Last week, the ISM service sector survey surprised to the upside, showing economic activity expanded in August for the second month in a row.

A leading indicator of future business is the new orders component of the ISM services survey, which I’ve charted. After declining at the start of the year and bouncing around throughout the spring, new orders picked up in July and hit a 2022 high in August. This influx of new business demand shows that a major portion of the U.S. economy has wind in its sails heading into the fall.

Note: Chart shows monthly level of the ISM Services New Orders index from September 2017 through August 2022. Sources: Institute for Supply Management, FactSet.

Adviser’s Takeaways

In recent Adviser Takeaways, Account Executive and Financial Planner Diana Linn talked about how to triple your tax benefits with an HSA, while Senior Research Analyst Liz Laprade discussed this week’s inflation figures.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like us to address by sending an email to!

About Adviser

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

Figures related to number of clients and assets under management are as of December 31, 2021.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.