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I’m retired. How do I protect my money in a bear market?

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A little rebalancing of your investments—and your budget—can go a long way.

A bear market will take its toll on even well-built retirement portfolios. Try these five rules of thumb for hanging on to your hard-earned savings and investments.

Simply analyze the situation and adjust as needed. Think about trimming expenses, increasing savings, and/or delaying or easing more slowly into retirement.

Unless you've just realized that you're not as risk-tolerant as you thought, avoid changing your long-term portfolio asset allocation because of short-term market behavior.

It is, however, a good time to think about rebalancing your mix of stocks and bonds to your long-term target allocation.1

Set aside enough cash to cover your routine expenses for one year (minus what you expect from reliable non-portfolio sources of income, such as Social Security). Keep that money in a relatively safe place, such as a savings account, money market fund, or short-term certificate of deposit (CD). Keep another two years' worth of expenses in high-quality, short-term investments as part of your fixed-income allocation.

We believe a good rule of thumb is to withdraw 4% of your portfolio in the first year of retirement, and increase that dollar amount every year by the rate of inflation. We estimate that a conservative-to-moderate portfolio that follows this rule has a 90% chance of lasting for 30 years.

As for the "or less," during adverse market periods like the current one, you might want to take out only enough to cover non-discretionary expenses.

If you need it, you need it, but it'll end up costing you. If you're under age 59½, you'll pay a 10% federal penalty and income taxes on the withdrawal (state taxes and penalties may also apply), and you'll give up potential compound growth.

Borrowing from your 401(k) is a second-to-last option. Keep in mind, if you take out a loan from your 401(k), you'll have to pay the loan back with after-tax dollars. And if you leave your job, your loan balance will be due when you leave.

If a bear market made you nervous and you sold your stocks, now is a good time to re-evaluate your tolerance for risk. Having at least 20% of your portfolio in stocks can provide a hedge against inflation, so if you can still tolerate a minimum amount of risk, consider gradually reinvesting that portion over the next year.

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