How to Retire During a Financial Crisis

Financial planner Bill Losey shares his strategy.

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Older Americans with their nest egg in the stock market right now may be watching secure retirement dreams crumble before their eyes. Retirees and baby boomers near retirement age may have lost a hefty chuck of their savings at an age when many have little time or ability to recover.

Avoiding and recouping large financial losses is a long and tedious process without a quick fix. Strategies advanced by financial advisers and retirement experts include delaying retirement until the market improves, reducing withdrawals from retirement accounts for a few years, leaving your asset allocation intact and hoping the market corrects itself, or changing your investment allocation to become more conservative as you age.

I recently spoke with Bill Losey, a financial planner and author of Retire in a Weekend! The Baby Boomer's Guide to Making Work Optional, about a method he advocates that, in theory, would allow baby boomers to weather temporary market slumps. Losey calls his approach the "safe-money benchmark strategy," which calls for the liquidation of assets when they exceed a predetermined benchmark the investor chooses.

For example, an investor with $400,000 invested in index funds or ETFs might sell high whenever those investments hit a $425,000 benchmark. The $25,000 in profits is stored in ultrasafe investments like certificates of deposit, bonds, treasury bills, or even cash so that investors can never lose those profits unless they choose to spend them. Ideally, a retirement saver accrues three to five years' worth of living expenses in this "safe money area" in the years leading up to retirement by always selling high during upswings and taking the spoils out of the market. Once retired, you can use this liquid cushion to weather periods of flat growth or negative returns. "If a normal market correction lasts two or three or four years, you will never have to withdraw from a declining portfolio balance," Losey says.

If you've employed any of these strategies, please tell us about it below.