How to Avoid Selling Investments in a Down Market During Retirement
Oct 05, 2026A market downturn can be stressful at any age. In retirement, however, it can create a more serious problem: you may need to sell investments while they are down simply to cover your living expenses. That can lock in losses and leave fewer assets available to benefit when the market recovers.
This is known as sequence-of-returns risk. It is not only how much your portfolio earns over time that matters. The order of your gains and losses matters, too, especially once you begin making withdrawals.
Imagine the market falls 10% and you also withdraw 4% for income. Your portfolio has now absorbed the market decline plus the withdrawal. Recovering from that combined impact becomes harder because the money you sold is no longer invested. A 10% loss requires an approximately 11% gain to get back to even. A 50% loss requires a 100% gain.
Traditional diversification spreads money across asset types. Time diversification adds another dimension by matching portions of the portfolio to when the money is expected to be needed. The goal is not to eliminate normal market losses. It is to keep short-term spending needs from dictating long-term investment decisions. When each dollar has a purpose and a time horizon, market volatility may become easier to manage without abandoning the overall plan.
The 3/21 Retirement Plan is designed to help retirees avoid being forced to sell growth investments at the wrong time. The “3” represents three time horizons, or three buckets of money.
The first bucket is for near-term expenses. It may hold approximately two to three years of the income you will need beyond Social Security, pensions or other reliable sources. Its purpose is stability and accessibility. Depending on the individual plan, this bucket might include CDs, money market funds, short-term Treasuries or other lower-volatility investments.
The second bucket is intended to cover the following few years. It may accept somewhat more fluctuation than the first bucket while remaining more conservative than the long-term growth portion of the portfolio. This additional reserve can give the market more time to recover after an extended downturn.
The third bucket is the growth bucket. Because the first two buckets are designed to fund shorter-term needs, the growth assets may have more time to remain invested through market volatility. That separation can help reduce the pressure to sell stocks or other growth-oriented investments when prices are low.
The “2” in the 3/21 plan refers to using two strategies within each bucket. No single investment or approach performs best in every market environment. Layering strategies can provide additional flexibility and protection when interest rates, inflation and market conditions change.
The “1” represents an annual review and stress test. Retirement plans cannot be placed on autopilot indefinitely. Spending needs change. Tax laws change. Interest rates and markets change. Health concerns, long-term care needs and family priorities can also affect how much safety or growth your plan requires.
There is no universal formula for how much belongs in each bucket. Someone with a pension and modest spending needs may structure the plan differently from someone who relies heavily on portfolio withdrawals. Your time horizon, risk tolerance, tax situation and need for future growth all matter.
The key question is simple: If the market declined tomorrow, which assets would you sell to pay your bills? If you do not have a clear answer, your retirement income plan may be more exposed than you realize.
A well-designed retirement strategy should help you fund today’s lifestyle without sacrificing tomorrow’s goals. To discuss how the 3/21 Retirement Plan could be tailored to your needs, schedule a consultation with Leibel Sternbach.
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