What a Market Downturn Actually Changes About a Near-Retirement Plan

A downturn changes two things worth naming: how you pull income and, sometimes, when you start. It rarely changes the plan by itself. What matters most is the drawdown, because roughly 77% of a retiree’s income outcome traces to returns in the first ten years (Wade Pfau, 2013). Timing beats reacting.

The number is rarely the trigger

Clients ask for the threshold. A percentage, a count of down months, some line that says now you change course. There isn’t one, at least not a useful one.

What moves a plan is a change in your situation, not a change in the index. A market number tells you the market moved. It tells you nothing about whether your income need, your expenses, or your timeline moved with it. Those are the things a strategy is actually built on.

Keep in mind the market drop and your plan are two separate questions. The second one gets answered first.

What a downturn actually changes: the drawdown

Here is the part that outweighs the headline. A portfolio you are drawing income from is hurt by early losses in a way a portfolio you are still funding is not. Sell shares into a decline to cover this year’s income and those shares are gone before the recovery arrives.

Wade Pfau’s research put a number on it. In the distribution phase, the compounded return over the first ten years of retirement explains about 77% of the sustainable-income outcome, and the very first year alone explains more than 14% (Wade Pfau, “The Lifetime Sequence of Returns: A Retirement Planning Conundrum,” 2013). The order of returns, not the average, decides a large share of the result.

That is why the same drop lands differently depending on what your money is doing.

Figures from Wade Pfau, “The Lifetime Sequence of Returns: A Retirement Planning Conundrum” (2013).

Read that table twice. Early losses barely dent someone still contributing, because their biggest balances come later. For someone spending from the account, the early years carry most of the weight. Same market, opposite consequence.

So the near-retirement adjustment is usually about the drawdown, not the retirement date. Fidelity’s guidance for retirees in a down market starts with looking at cash before selling securities, keeping withdrawals near a stress-tested 4% to 5% of the starting balance rather than selling equities into the fall (Fidelity Viewpoints, 2026). Once you can fund a year or two of income without touching stocks at their lows, a downturn becomes something you wait out instead of something you react to.

And sometimes the date

The second thing a downturn can change is when you start certain income streams, Social Security among them.

Delaying a claim raises the benefit. “Social Security retirement benefits are increased by a certain percentage for each month you delay starting your benefits beyond full retirement age,” per the Social Security Administration, and for anyone born in 1943 or later that works out to 8% a year up to age 70 (SSA Benefits Planner, 2024).

That cuts both ways, and the consequence sits on each side. Wait, and you lock in a larger inflation-adjusted lifetime benefit, which is worth more precisely when your portfolio is down. Claim earlier to avoid selling stocks at a low, and you accept a permanently smaller check. Neither is automatically right. It turns on whether you have other cash to bridge the gap without raiding investments at the wrong moment.

Once your income sources and your spending are mapped side by side, that decision stops being a guess and becomes arithmetic.

The annuity question, honestly

A few years back a client wanted to guarantee part of his income by moving a portion of his account into an annuity. A reasonable instinct, especially heading into an uncertain market.

When it came time to retire, he couldn’t say what he actually spent in a month. And without the monthly number, there was no way to size how much income to guarantee. So the strategy changed, not because of anything the market did, but because the figure the whole decision depended on wasn’t known yet.

That is the honest version of the annuity question. An annuity can fit when you have essential expenses you want covered no matter what markets do, and you know what those expenses are. It is the wrong tool when it is standing in for a budget you haven’t built. Figure out the spending first. The product decision is downstream of that, always.

Where that leaves a near-retirement high earner

If you are within about five years either side of retirement and watching this drop, the useful work is mapping your real monthly need against your income sources before changing anything. That is the ground the whole plan stands on.

The ten-year retirement window covers how income sequencing, RMDs, Roth conversions, Medicare, and Social Security timing fit together across exactly those years. For high earners still a decade or more out and building toward the decision, the San Diego HENRY strategy covers the accumulation side of the same question.

If you’d rather talk it through against your own numbers, happy to. You can book a complimentary conversation.

Frequently asked questions

Is there a market drop percentage that means I should delay retirement?

No single threshold does that job. A percentage tells you the market moved, not whether your income need, expenses, or timeline changed. The trigger for a strategy change is a shift in your situation, and a downturn is only one input into that.

What is sequence-of-returns risk, in plain terms?

It is the risk that a bad market early in retirement does lasting damage because you are selling shares to fund income at low prices, leaving fewer shares to recover. Pfau's work found the first ten years of returns explain roughly 77% of the sustainable-income outcome (Wade Pfau, 2013).

Should I move money into an annuity when the market drops?

An annuity is educational to consider, not a reflex. It can fit when you want essential expenses covered regardless of markets and you know what those expenses are. Without a clear monthly spending number, there is no way to size the income to guarantee, so the budget comes first.

Does claiming Social Security earlier make sense in a downturn?

Sometimes, as a way to avoid selling stocks at a low, but it locks in a permanently smaller benefit. Delaying adds about 8% a year up to age 70 (SSA, 2024). Which side wins depends on whether you have other cash to bridge the gap.

The question worth sitting with: do you know, to the dollar, what you spend in a month? If yes, a downturn is mostly a math problem. If no, that is the first thing to fix. Hope that helps.