8 Tips for Managing Cash Flow in Retirement When Stocks Are Volatile

The stock market is known for volatility. But lately, the roller coaster ride of ups and downs has put folks — especially retirees — on edge.

Whether you are planning for retirement or are currently in your golden years, here are some tips for managing your cash flow during chaotic times.

1. Consider suspending systematic withdrawal plans

Many retirees use what is known as a systematic withdrawal plan (SWP) when managing their income.

With this type of plan, a specific dollar amount of investments is automatically sold each month, and the proceeds are directed into a money market account or some other account.

However, dramatic ups and downs in the stock market can make sticking with an SWP a bit riskier. It's possible your automatic withdrawals will happen during periods when the market is sinking fast.

That means you'll liquidate a larger percentage of your portfolio to meet your monthly cash needs.

During times of market turbulence, it might be a good idea to turn off the automated withdrawals. Instead, you might take money from a savings account, or simply temporarily reduce your spending until the market recovers.

2. Withdraw less than 4% of your savings

Many retirees use the 4% withdrawal rule, which suggests withdrawing 4% of your portfolio each year during retirement. However, if the market falls and you continue to withdraw 4%, you risk draining your portfolio faster.

So, when the market plunges and stays low for a while, you might consider tightening your belt and withdrawing less than 4% of your portfolio. For example, you might opt to withdraw just 3% or even nothing in a given year to avoid eating into your portfolio's long-term value.

Then, when markets recover, you can return to withdrawing 4% again.

3. Tap into your cash savings

As we mentioned before, when your investment portfolio is down, it is sometimes better to dip into your savings than to sell investments.

Leaning on the cash stashed in a CD or savings account gives your portfolio time to recover. By avoiding withdrawing from your nest egg during a downturn, you reduce the risk that you might run out of money sooner than expected.

Once the market recovers, you can breathe a sigh of relief and return to withdrawals from your nest egg.

4. Turn to an emergency fund

A cash emergency fund is designed to help you weather whatever life throws your way. If you are on the receiving end of a market downturn, it might be an appropriate time to tap into your emergency fund.

However, remember to refill your emergency fund when times are good again. It's a fact of life that the next bout of market volatility is likely right around the corner.

5. Cut back on your spending

Cutting spending is an even better idea than tapping into savings or an emergency fund. If possible, pull back on spending on non-essential purchases during periods of market volatility.

For example, you might eat at home more often or travel less until the market rebounds. Trimming your spending might help you make ends meet without having to raid savings. That is a big win.

6. Consider a Roth conversion

If you're able to lean on cash savings and don't have any pressing financial needs at the moment, it's possible that you can turn a market downturn into something positive.

When stocks fall, it can make sense to consider making a Roth conversion. This involves moving funds out of a retirement account such as a traditional IRA or 401(k) and into a Roth IRA.

By moving a portion of your portfolio when the market is down, you'll take less of a tax hit upfront. That is because the amount of money you are converting will be smaller than it would have been before the value of your investments began to sink.

Although this move won't help solve any short-term cash flow issues, it could lead to better cash flow in the future: Any money that goes into a Roth and grows during a subsequent market recovery will not be subject to income taxes when you withdraw it.

7. Use tax-loss harvesting to your advantage

Tax-loss harvesting involves selling an asset at a loss, which lowers your taxable income for the year.

If your portfolio includes several stocks that are down, selling them at a loss could lower your tax bill for the year, thus improving cash flow.

8. Consider annuities

Purchasing an annuity gives you peace of mind about a stable cash flow in retirement. This reliable income stream eliminates the ups and downs of the market. Instead, you'll receive a regular payment as part of the terms of your annuity.

Of course, one big downside to buying annuities is the fees that are often involved. These can cut into your total returns.

In addition, the money you use to purchase the annuity is cash that you will never be able to put to work in the stock market.

Bottom line

We all hope for a stress-free retirement. But the truth is that it's impossible to know what the future holds in terms of stock market volatility.

While you cannot predict the future, the tips on this list can help you to weather whatever financial storms life might bring during your golden years.