Retirement Retirement Planning

This One Retirement Mistake During Volatility Could Cost You Thousands

Don't let a down market derail your entire plan.

By Chris Lewis, CEPF , Edited by Laura Hohenstein

Updated May 4, 2026

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When markets turn volatile, the instinct to act is powerful, especially for retirees who no longer have a paycheck to fall back on. But for people already drawing down their portfolios, that instinct can be the most expensive one they act on.

Learning to avoid money mistakes during turbulent markets isn't just smart financial hygiene; for retirees, it can be the difference between a plan that holds and one that quietly unravels. The single most damaging move a retiree could make when markets drop? It's the one many retirees instinctively reach for when volatility hits.

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Why panic selling hits retirees harder than anyone else

Workers who experience a market downturn can ride it out. They keep contributing to their 401(k), buy shares at lower prices, and let time do the work. Retirees may not have that option. They're withdrawing from their portfolios, not adding to them, which means a down market doesn't just reduce the value of their investments. It forces them to sell more shares to generate the same income.

That dynamic has a name: sequence of returns risk. It refers to the outsized damage that poor market returns in the early years of retirement can cause, regardless of how the market performs later. The order in which returns arrive matters enormously when you're drawing down a portfolio.

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A concrete example of the damage

Consider two retirees who each start with $500,000 and withdraw $25,000 per year. Retiree A experiences strong returns in the early years, followed by a downturn later. Retiree B experiences the same returns in reverse, with a sharp downturn in years one through three followed by strong recovery.

Even if both sequences produce the same average annual return over 20 years, Retiree B runs out of money years earlier. The reason is straightforward: early losses force the sale of more shares at depressed prices to meet withdrawal needs. Those shares are gone when the market recovers, so the recovery does less work for the portfolio. The damage isn't temporary. It's structural.

Panic selling during that early downturn accelerates the problem. Locking in losses at the bottom doesn't just reduce the portfolio's value, but rather permanently shrinks the capital base available to benefit from any eventual rebound.

What retirees should do instead

When panic isn't an option, preparation becomes the strategy. Here's what retirees could consider doing to protect their portfolios before volatility forces a bad decision.

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Keep one to two years of living expenses in cash

The most practical defense against sequence of returns risk is removing the need to sell investments at all during a downturn. A cash reserve of one to two years' worth of living expenses gives a portfolio time to recover without forcing liquidation at the worst moment. When markets are down, retirees draw from cash. When markets recover, they replenish it.

Take a flexible approach to withdrawals

Rigid withdrawal strategies, such as pulling the same fixed dollar amount every year regardless of market conditions, could accelerate portfolio depletion during downturns. A flexible approach means pulling back modestly when markets are down and spending a bit more freely when they're up. Even small adjustments could meaningfully extend how long a portfolio lasts.

Don't overcorrect by going too conservative

The fear that drives panic selling sometimes leads retirees to move entirely into bonds or cash, believing they're protecting themselves. That overcorrection carries its own serious risk. A retirement that lasts 25 or 30 years requires some equity exposure to keep pace with inflation. A portfolio that earns 2% annually while inflation runs at 3% is losing purchasing power every year. This happens slowly, quietly, and just as permanently as a market crash.

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Bottom line

The biggest retirement mistake during economic volatility isn't market losses, as those are temporary. The real damage comes from locking in those losses by selling, eliminating your ability to recover. A written withdrawal plan, created in advance, could help prevent this by replacing emotional decisions with a clear framework.

To truly set yourself up for a retirement that lasts, the work happens before the storm, not during it. Retirees who define their cash buffer, flexibility, and equity exposure ahead of time are far less likely to make costly decisions. A plan won't remove market risk, but it could keep fear from turning a short-term dip into a permanent loss.

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