A Down-Market Survival Guide for Retirees

I often cringe when I hear market commentators suggest that investors shouldn't sell stocks amid market downturns. It's true that it's rarely a good idea to panic-sell; you're more likely to let your emotions get the best of you and you could make decisions that bring short-term relief but longer-term angst. ("Is the worst over? Is it time to get back in?")

But the right response to market downdrafts really depends on you, your life stage, and what your financial priorities are. The usual prescription for younger investors amid weak markets--stand pat with your existing long-term holdings--may indeed make sense if you're retired. But it's not always wise to sit tight during market weakness, especially if you're retired and haven't taken any equity risk out of your portfolio in many years. After all, spending from an equity-heavy portfolio that's simultaneously declining means there will be fewer assets in place to recover when stocks finally do. Taking too-high withdrawals from a declining portfolio could permanently impair your portfolio's long-run sustainability, especially if those withdrawals occur early in your retirement.