30 Apr What to Do if the Market Tanks When You’re Retired or Close to It

What to Do if the Market Tanks When You’re Retired or Close to It

Uncertainty is becoming the new normal for investment markets. After the global economy began recovering from the pandemic, fresh challenges like geopolitical conflicts and shifting global alliances introduced new volatility. This can be especially worrying for those nearing retirement or already living off their investment income.

The Lessons of History

Market downturns are inevitable. History shows that markets are cyclical, and although no one can predict when the next dip will happen, being prepared is essential—especially for those moving from accumulation to retirement.

For example, during the COVID-19 market crash of early 2020, many super fund members saw significant drops in their savings. A member with a $500,000 balance in a median Balanced option in August 2019 would have seen growth to $527,000 by February 2020—only to face a sudden drop to around $457,000 in March.

Those who panicked and switched to cash options locked in losses, whereas those who remained invested in a Balanced option eventually saw their balances recover and grow to over $610,000 by April 2023. This shows that panic-driven decisions can have lasting impacts, especially during volatile times.

Timing—also known as sequencing risk—is a significant concern. Drawing down on a depleted balance can increase the risk of running out of money earlier than planned. Moreover, switching to cash at the wrong time limits potential future growth.

Key concerns for retirees include:

• Timing withdrawals carefully (managing sequencing risk)
• Choosing an appropriate investment mix
• Ensuring access to liquid funds for living expenses

Choosing the Right Investment Mix

A common mistake during market downturns is switching from growth assets like shares into cash at the market’s bottom. This not only locks in losses but also means missing out on potential recoveries.

Diversified portfolios performed much better during the COVID crash than individual share markets. Nevertheless, many investors switched to cash and conservative options during the panic, repeating patterns seen during previous crises like the Global Financial Crisis (GFC).

Over the 10 years to December 2024, median Balanced pension funds achieved an annual return of 7.8%, while Capital Stable options achieved 4.9%. This performance occurred during a decade marked by significant volatility but still beat average inflation.

Maintaining a well-thought-out investment strategy aligned with personal risk tolerance and retirement goals remains critical.

Resist the Itch to Switch

During turbulent times, the temptation to switch to “safer” assets can be strong. However, it’s not just about deciding when to exit the market—it’s also about knowing when to re-enter. Many who switched to cash during the early pandemic missed out on much of the subsequent recovery.

Trying to time the market can result in missed opportunities. Staying the course often results in better long-term outcomes, even if short-term volatility can be unsettling.

Know Your Risk Tolerance

Understanding personal comfort with investment risk is important before downturns occur. A well-matched investment mix will help manage emotions during inevitable market ups and downs.

Rather than reacting impulsively, consider whether your current strategy suits your retirement phase and goals. Adjustments should be strategic and based on long-term plans, not short-term fear.

Be Prepared to Adapt

Flexibility is crucial. If market downturns persist, retirees may need to adjust spending, delay major withdrawals, or rethink investment allocations. Building in flexibility ensures that unexpected market events do not derail long-term financial security.

Assess Your Liquidity Needs

Holding enough cash or cash equivalents to cover living expenses for a year or two can provide peace of mind. This approach avoids the need to sell growth assets at depressed prices during a market slump.

Planning ahead by maintaining an emergency cash buffer can protect retirement savings and reduce financial stress during uncertain periods.

Plan to Plan

Markets will continue to experience ups and downs. Having a structured plan—and revisiting it regularly—helps manage both finances and emotions.

Regular reviews ensure that retirement strategies stay aligned with changing market conditions, personal circumstances, and long-term goals.

If you’d like to discuss how these changes could impact your financial strategy or need help planning around these updates, feel free to reach out.

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)