How to Protect Your Retirement Savings: Why Early Losses Can Hurt You Most

Saving for retirement is one of the most important financial goals most of us have. You work hard for decades, putting money away bit by bit, hoping it will be enough to carry you through your later years. But what many people don't realize is that when you experience gains and losses in retirement can matter just as much as how much you've saved.

One of the biggest threats to your retirement nest egg isn't just market downturns — it's poor returns in the early years of retirement. In fact, losses early on can be far more damaging than losses later. Here's why that happens and, more importantly, what you can do to protect your savings.

1. The Hidden Risk: Sequence of Returns

Let's start with a concept that financial planners call the sequence of returns risk. In simple terms, this means the order in which you experience investment returns — especially once you start withdrawing money in retirement.

Here's the key: if the market drops right after you retire and you're withdrawing funds at the same time, your portfolio shrinks much faster. You're selling investments at lower prices and leaving less money to benefit from future market rebounds.

For example, imagine two retirees with identical savings and average returns over 20 years. If one suffers market losses in the first few years, while the other sees strong early growth, the first could run out of money far sooner — even if the long-term average return is the same.

2. Build a Safety Net Before You Retire

To avoid being caught off guard, it's smart to shift your strategy as retirement nears. In the five to ten years before you stop working, focus on protecting your savings rather than chasing high returns.

That means:
• Diversifying your investments. Don't rely entirely on stocks, especially risky individual stocks.
• Reducing exposure to high-volatility assets.
• Adding more bonds, CDs, or money market funds to your portfolio.

You don't have to go ultra-conservative, but building a buffer can soften the blow of a downturn during those crucial first years of retirement.

Also, having a separate emergency fund — outside your retirement account — can help you avoid tapping your nest egg during bad markets.

3. Don't Try to Time the Market

Many people panic when markets dip. But trying to jump in and out of the market rarely works — and often causes more harm than good.

Instead of guessing when to buy or sell, adopt a long-term, steady approach. That could mean using tools like:
• Target-date retirement funds, which automatically adjust risk as you age.
• Balanced or income-focused funds, which blend growth and stability.

Even if you're already retired, the market will likely go through several ups and downs during your retirement years. Being prepared for those swings — and not reacting emotionally — can make a big difference.

4. Withdraw Wisely: It's Not Just About What You Earn

How much you take out of your retirement account each year matters — a lot. Withdrawing too much too soon can drain your savings, especially in years with poor returns.

Many advisors recommend following the 4% rule: withdraw about 4% of your savings in the first year, then adjust for inflation. It's not perfect, but it can help you avoid overspending.

Another smart method is the bucket strategy:
• Keep 1–2 years of cash for living expenses in a “short-term” bucket.
• Use conservative investments (like bonds) for a “medium-term” bucket.
• Invest longer-term money in stocks, which you won’t touch for 5–10 years.

This way, you’re not forced to sell stocks during a downturn — you have cash and stable income sources to ride out the storm.

5. Revisit Your Plan Every Year

Retirement isn’t “set it and forget it.” Life changes. Markets change. Your needs will change too.

That’s why it’s important to review your retirement plan regularly — at least once a year. Check:
• Are you spending more or less than planned?
• Do you need to adjust your withdrawal rate?
• Has your investment mix drifted too far from your target?

Even small tweaks can help your savings last longer and give you more peace of mind.

6. Don't Be Afraid to Ask for Help

You don’t have to navigate retirement planning alone. A financial advisor — especially one who is a fiduciary — can help you create a plan tailored to your goals, risk tolerance, and lifestyle.

If you’re unsure where to start, here are a few low-cost resources:
• Online retirement calculators (like those from Fidelity or Vanguard)
• Social Security benefit estimators
• Community workshops or nonprofit financial education programs

What matters most is making informed decisions — not guessing or doing nothing.

Final Thoughts

Retirement is supposed to be a time to enjoy the rewards of your hard work — not to worry about money running out. And while you can’t control the stock market, you can control how you prepare and how you respond.

By protecting yourself from early losses, managing your withdrawals wisely, and staying flexible with your plan, you’ll give your savings the best chance to go the distance.

You don’t need to be a financial expert. You just need a smart plan — and the courage to stick with it.