This article was originally published in our weekly newsletter.

In 2022, the S&P 500 declined by approximately 30%.

It recovered quickly.

Many investors have become accustomed to these quick recoveries.

The last significant market crash was in 2008.

It’s been a while since we’ve had to deal with portfolios going down around -50%.

It took around five years to recover from the 2008 financial crisis.

That recovery time assumes you did not withdraw anything from your portfolio (including dividends) during that timeframe.

We see similar market conditions in other historical market crashes.

That means there’s a reasonable chance that the markets could crash -50% or so at the beginning of your retirement.

With this understanding, let’s run a retirement income and lifestyle experiment.

Let’s say you have $2 million saved for retirement.

In your second year, the markets crash by -50%.

Your $2 million is now worth $1 million.

What do you do?

Do you cut your income in half?

Do you go back to work?

Do you cut all travel and fun expenses, maybe start eating Top Ramen, and wait for the market and your account to recover?

If the answer is “yes” to any of the suggestions above, I would suggest that you may not have an appropriate retirement plan.

Chances are, you’re taking too much risk (and may not realize it).

Time (not money) is your most precious commodity.

How you spend your time matters.

It should not be affected by market conditions.

Here are a couple of strategies that could help you prepare for the next market crash while maintaining your overall expected quality of life.

You could have some of your assets in CDs, Treasuries, or Fixed Annuities that you could use as a source of income while you let your other accounts recover.

It works because these accounts don’t go down when the markets go down.

They grow at a fixed rate.

You can take income from them while you let your other accounts recover.

You can build an income plan with guaranteed lifetime income, which should withstand a market crash.

You could buy an annuity with a period-certain option.

Instead of lifetime income, you are guaranteed a payout of five years or more, which could provide income during the market crash while you let your other accounts recover.

You could diversify your income strategies into other markets, such as the real estate market.

The list of strategies goes on.

The Takeaway

Life is short.

Having a plan that reacts to the stock market may not be the best.

Know what you will do when the markets go up.

Plan what you will do when the markets go down.

If implemented correctly, you should be able to maintain your quality of life before, during, and after a significant market crash.

In my mind, it’s not about becoming the richest person in the graveyard…

It’s about living your best life.

If you have questions about your portfolio or want to stress test it now while markets are good, click here and schedule a call.