Financial planner Dana Anspach calls the five years before retirement and the first five years after it the retirement “red zone.” During a recent Morningstar interview, she explained why this decade deserves special attention and how retirees can prepare without assuming disaster is inevitable.
A badly timed downturn hurts
People who are still working can usually wait for the market to recover. They continue receiving a paycheck and may even keep buying investments at lower prices.
Retirees face a different problem. They may need to sell investments to cover living expenses, even though their portfolio is already down. Those withdrawals leave less money invested for the eventual recovery.
You cannot completely control whether retirement begins during a boom or a bear market. Anspach says you can test whether your plan would have survived difficult periods such as 2000, 2008 or other historically poor stretches.
That exercise may reveal whether you need to save more, work longer or reconsider your spending. It may also confirm that your plan is stronger than you feared. Anyone approaching this period can also compare their progress with a broader 10-year retirement plan.
This could be a good time to consider a part-time or work-from-home job, which could continue after your retirement. FlexJobs lets you browse and apply to verified jobs around the corner and around the world.
Know what you would change
Anspach dislikes plans that assume the worst possible outcome from day one. Most retirees will not encounter the worst third of all historical market periods. Spending as though it is guaranteed could mean unnecessarily sacrificing travel, hobbies and other pleasures during their healthiest retirement years.
Instead, she recommends knowing what you would change if conditions deteriorate. You might postpone a large purchase, trim optional spending or work an additional year if a downturn begins before your planned retirement date.
That flexibility also matters when deciding how much to withdraw each year. The old 4% guideline is a starting point, not a commandment. Morningstar has previously emphasized that spending may need to be adjusted to market conditions.
Build a paycheck before you lose one
Anspach uses two broad investment buckets with clients. One provides the money they expect to spend during the early years of retirement. The other remains invested for longer-term growth.
The first bucket might contain cash, certificates of deposit or bonds scheduled to mature when the money will be needed. Knowing that several years of expenses are covered may help a retiree avoid selling stocks after a sharp decline.
Anspach says the ideal time to begin building this bond ladder could be about 10 years before retirement. But she does not recommend blindly moving a fixed amount out of stocks every year.
Instead, investors can take advantage of good markets. When stocks have risen and the portfolio is ahead of schedule, they might sell some shares and secure another future year of income. When stocks are down, they can pause.
By retirement, that process might produce five to eight years of covered withdrawals, depending on what the market delivered along the way.
Make sure any spare cash is working for you. SoFi offers a combined checking-and-savings account with no account fees. With eligible direct deposit or $5,000+ in qualifying deposits every 31 days, you can earn a competitive APY on savings — many times the national average — plus interest on checking. New members may also qualify for a limited-time APY boost for up to six months. (APYs are variable and can change at any time.)
New members who set up qualifying direct deposit may also be eligible for a cash bonus of up to $400, based on the amount deposited. Terms apply — see details.
Earn up to 4.40% Annual Percentage Yield (APY) on one SoFi Savings account with a 1.10% APY Boost (added to the 3.30% APY as of 10/20/26) for up to 6 months. Open your first SoFi Checking and Savings account between 10/20/26 and 12/31/27, then within 60 days of account opening receive an eligible direct deposit OR $5,000 or more in qualifying deposits. You must maintain eligible direct deposit or $5,000 in qualifying deposits every 31 days to keep the Boost, for up to 6 months. Rates variable, subject to change.
Terms apply at sofi.com/banking. SoFi Bank, N.A. Member FDIC.
Plan to protect yourself
A retiree who sees a 20% loss and moves everything to cash can lock in the decline and miss the recovery. A separate spending bucket does not prevent losses, but it can make them easier to tolerate.
You know where the next several years of income will come from. You have time to decide whether the downturn requires a genuine change rather than reacting to a frightening account balance.
Anspach’s central point is not that every retiree needs the same number of bonds or the same size cash reserve. It is that retirement planning should follow a process instead of a rigid rule.
Test the plan against bad markets. Secure near-term income when conditions allow. Decide in advance what you might adjust. Then let your long-term investments do the job you kept them for.
If you have over $100,000 in savings, plan with a pro. SmartAsset offers a free service that matches you to a vetted, fiduciary advisor in under five minutes.
Add a Comment