By: Sergio V. Ortiz, Wealth Advisor
A few months ago, I sat down with a couple who had just retired. Let’s call them Mark and Susan. After decades of diligent saving and careful planning, they were finally ready to enjoy the next chapter — travel, time with grandkids, and a few long-awaited experiences they’d been putting off.
But they were feeling uneasy.
“I know we’ve planned for this,” Susan said, “but what happens if the market crashes next year? Would we still be okay taking income?”
This concern is both common and valid. Navigating retirement while managing market ups and downs — and still drawing income for your lifestyle — is one of the most important (and sometimes most misunderstood) parts of financial planning.
Let’s take a closer look at how we can approach it.
The Markets Don’t Know You’re Retired — But Your Plan Can
Market volatility isn’t new. Since 1980, the S&P 500 has seen an average intra-year drop of around 14%, according to J.P. Morgan’s 2025 Guide to the Markets. Despite these drawdowns, most years have ended in positive territory — a reminder that temporary declines don’t always translate into long-term losses.
[Source: J.P. Morgan Asset Management, Guide to the Markets Q2 2025]
However, for retirees or those approaching retirement, the timing of market returns can have a significant impact — a concept known as sequence of returns risk. This risk arises when withdrawals are made during a market downturn, potentially locking in losses and reducing the portfolio’s capacity to recover in later years.
Michael Kitces and Wade Pfau have written extensively on this topic, demonstrating how negative returns early in retirement may lead to lower portfolio longevity, even if the average return over time remains the same.
This is one reason we often look beyond “rules of thumb” like the 4% withdrawal rule — not because they’re inherently flawed, but because they may not account for real-world variability, tax considerations, or your specific goals and cash-flow needs.
Insight #1: Consider Building a Short-Term Income Buffer
One way to reduce reliance on the market during periods of volatility is to set aside 6 to 24 months’ worth of planned withdrawals in a short-term “income buffer.” This might include high-yield savings accounts, money market funds, or short-duration bonds.
Think of it like building a reservoir. In years when markets are down, you might draw from this buffer instead of selling long-term investments. And in strong market years, the buffer can be replenished.
A Morningstar study found that retirees who used a reserve bucket strategy — essentially separating short-term cash needs from longer-term investments — were able to maintain greater peace of mind and may have improved portfolio durability.
[Source: Morningstar Research, “Bucket Approach for Retirement Portfolios,” 2022]
Insight #2: Align Investments With Time Horizons
Another approach that can provide structure during turbulent markets is the bucket strategy, which groups investments by time horizon:
- Short-term (0–2 years): Cash and cash-like holdings to meet near-term needs.
- Mid-term (3–7 years): More conservative investments like high-quality bonds or income-focused funds.
- Long-term (7+ years): Growth-oriented investments, including stocks or real estate, designed to outpace inflation.
This framework doesn’t eliminate risk — but it may help put market movements into context. For instance, if a portion of your portfolio is earmarked for expenses 10 or 15 years from now, temporary volatility might feel less threatening.
This type of time segmentation strategy has been examined by retirement researchers like Blanchett, Finke, and Pfau, who note that it can help retirees remain invested while providing mental clarity about where income will come from.
[Source: Blanchett, Finke, and Pfau, Journal of Financial Planning, 2012]
Insight #3: Income Doesn’t Have to Mean Interest and Dividends
It’s a common belief that retirement income must come solely from bond interest or dividends. While this strategy worked better in decades past, today’s lower yield environment often requires a more flexible approach.
That’s where a total return strategy comes in. Rather than focusing solely on yield, this approach looks at the overall return of the portfolio — growth and income combined — and creates a sustainable withdrawal plan that’s tax-aware and responsive to changing market conditions.
This framework has been advocated by institutions like Vanguard and BlackRock, whose research suggests that a total return approach may offer greater diversification, better tax efficiency, and more flexibility than chasing income alone.
[Source: Vanguard Research, “Total Return Investing: An Enduring Solution for Retirement Income,” 2021]
It’s also more in line with how most retirees actually use their portfolios: not just to collect checks, but to support meaningful goals — whether that’s a month-long trip to Italy or simply feeling confident that they won’t have to downsize during a downturn.
Final Thoughts
Market volatility can feel unsettling — especially when your lifestyle depends on your investments. But with thoughtful planning, it’s possible to structure a retirement income strategy that’s both resilient and responsive.
That might mean building an income buffer, aligning investments to your timeline, or shifting toward a more flexible, total-return framework. Whatever the right path for you looks like, the goal is the same: helping you enjoy retirement with clarity, not worry.
If you’re not sure whether your plan is built to weather the next market storm — or if you’d just like to explore your options — feel free to reach out. I’d be happy to talk it through with you.
You’ve worked hard to get here. Let’s make sure your money continues to work for you — no matter what the markets are doing.
