Take these steps to help your retirement savings withstand the bear. Illustration by Richard Mia By Sandra Block, Senior Editor May 7, 2020From Kiplinger’s Personal Finance Bear markets can be nightmarish for retirees. Unlike their younger counterparts, retirees don’t have years to recover their losses. If they are forced to sell beaten-down stocks and mutual funds to pay the bills, they could inflict permanent damage on their portfolios, increasing the risk that they will outlive their savings.SEE ALSO: 5 Ways Retirees Can Play Defense With Retirement Portfolios That’s what happened during the Great Recession. Standard & Poor’s 500-stock index lost more than half of its value during the bear market of October 2007 to March 2009, and IRAs and 401(k) plans lost about $2.4 trillion in value just during the final two quarters of 2008. Investors who rode out the downturn recouped their losses in the 11-year bull market, but seniors who took withdrawals before the stock market recovered were left with locked-in losses. Sponsored Content Ideally, you have prepared for this calamity by sequestering enough in cash or other low-risk investments that, when combined with guaranteed sources of income, you can cover at least two years of living expenses. “It’s the equivalent of an emergency fund within your retirement plan,” says Andrew Houte, a certified financial planner in Brookfield, Wis. You’re even better prepared if you’ve adopted the bucket system, in which you divide your savings into cash, short- or intermediate-term bond funds, and stocks, based on when you’ll need the money (see Live Well Without Running Out of Money in Retirement). Cut expenses. After years of stock market gains and a roaring economy, some retirees and near-retirees may have forgotten the lessons of the Great Recession. David Mullins, a CFP in Richlands, Va., says he recently received a call from a retiree who had invested 100% of his savings in stocks. On one day in mid March, his portfolio lost more than $112,000. Advertisement If you find yourself in that unfortunate position, look for ways to cut expenses so you can postpone selling stocks or funds for as long as possible. Review your wireless bills for services you no longer use (or never requested). While you probably don’t want to cancel Netflix until you’re allowed out of the house, look for other subscriptions you can do without. Low interest rates offer other opportunities to cut costs. If you still have a mortgage, refinancing to a lower interest rate could lower your monthly bill and free up some cash. If your mortgage rate is more than one percentage point above current rates, it’s usually a sign that it makes sense to refinance. For help crunching the numbers, use The Mortgage Professor’s refinance calculator to enter the details of your current mortgage and your new loan to see how long you’d have to stay in your home to start saving money with a refinance. Look into a reverse mortgage. For homeowners who are 62 or older, a reverse mortgage could provide a reliable source of income until the market recovers. A strategy recommended by some financial planners, known as a “standby reverse mortgage,” is designed for just this type of downturn. Under this game plan, you take out a reverse mortgage line of credit to cover your expenses until your portfolio recovers. If you maintain your home and pay taxes and insurance, you don’t have to repay the loan as long as you stay in your home. Low interest rates have made these loans even more attractive. Under the terms of the government-insured Home Equity Conversion Mortgage, the most popular kind of reverse mortgage, the lower the interest rate, the more home equity you’re allowed to borrow. And if it turns out you don’t need the money, your untapped credit line will increase as if you were paying interest on the balance. Advertisement Be smart about Social Security. If the Great Recession is any guide, there will soon be a spike in claims for Social Security benefits, both by people who were forced to retire earlier than planned and by retirees who are worried about depleting their investment portfolios. Filing for Social Security benefits will provide a guaranteed monthly paycheck, which could allow you to postpone taking money out of your retirement savings. You can file for benefits as early as age 62, but if you do, your benefits will be permanently reduced by at least 25%. If you’re married and are the higher earner, claiming early could also reduce the survivor benefits your spouse will receive if he or she outlives you. Waiting until full retirement age — 66 or older for those born after 1943 — will allow you to claim 100% of the benefits you’ve earned. If you wait to file for benefits until after you reach full retirement age, your payouts will grow by 8% a year until you reach age 70. Married couples may be able to play it both ways. Have the lower-earning spouse file before full retirement age — as early as 62. Although that spouse’s benefits will be reduced, you can use that money to pay the bills until your portfolio has recovered. Meanwhile, the higher-earning spouse will be able to put off claiming benefits until full retirement age or later. Be strategic if you have to sell. For some retirees, cutting expenses and raising cash from other sources may not meet their immediate spending needs, especially if they have high health care costs. If you find you have to sell investments because you have no other option, first sell the assets that have performed best, with a focus on rebalancing your portfolio, suggests Rob Williams, vice president of financial planning at the Schwab Center for Financial Research. The goal is to tap strong performers instead of assets that lagged. Otherwise, you’ll lock in your losses for eternity. Advertisement After that, if you still need more cash, consider selling investments you probably wouldn’t buy today. Stocks that are heavily in debt, for instance, or small-company stocks and foreign stocks in developed and emerging countries would be good candidates, says Sameer Samana, global market strategist for Wells Fargo Investment Institute. Whatever shifts you make, make them with a mind-set to limit your withdrawals. Figure out how much you’ll need to pay the bills for the next year or two and withdraw that amount of money, Mullins says. SEE ALSO: 9 Smart Strategies for Handling RMDs Finally, if you need to tap taxable portfolios, balance any sales of your top performers with sales of funds or stocks that have dropped significantly in value and are unlikely to recover anytime soon. That way, you can use those losses to offset taxes on the gains. Relief for older retirees. Market downturns can also be rough for older retirees who are required to take minimum distributions from their tax-deferred retirement plans annually, whether they need the money or not. Advertisement But there’s good news on this front. The coronavirus stimulus package, known as the CARES Act, waives required minimum distributions for 2020. RMDs are based on your life expectancy and the value of your portfolio at the end of the previous year. An RMD taken in 2020 would have been based on the value of your accounts on December 31, when the S&P 500 was 12% higher than it was in mid April. Retirees who don’t need to take money out of their IRAs and other tax-deferred accounts can leave them alone until 2021. The SECURE Act, signed into law at the end of 2019, increased the age at which retirees are required to take RMDs from 70½ to 72, starting in 2020. So seniors who turn 70 this year will get three additional years of tax-deferred growth. But there’s relief for anyone who turned 70½ in 2019, too. Those who didn’t take their first RMD last year “get rewarded for their procrastination,” says Bud Heintz, a CFP in Scottsdale, Ariz. Without the waiver, they would have been required to take their first distribution by April 1. Now, they can postpone their first distribution until 2021. In some instances, you may still want to take a withdrawal from your IRA or other tax-deferred accounts, even if you don’t need the money, says Ed Slott, founder of IRAhelp.com. Income tax rates are low now, but that could change, he says. In addition, a withdrawal will reduce the size of your IRA, which will in turn reduce the size of future RMDs. Convert to a Roth? The waiver also creates an opportunity for retirees who want to convert money in a traditional IRA to a Roth. Ordinarily, the IRS bars retirees from doing that with money withdrawn to meet their annual minimum distribution requirement; retirees who want to convert some of their savings must do so after they take their RMD. But this year, retirees can convert money to a Roth without first taking a required distribution. While you’ll have to pay taxes on pretax money you convert, the taxes will be based on the value of your IRA at the time of the conversion. If your portfolio has taken a beating, this could be an ideal time to convert. Once your investments are in a Roth, future gains will be tax-free. Better yet, you don’t have to take RMDs from a Roth. Advice for workers Even savers who are years from retirement may feel whipsawed by recent events. A long bull market delivered generous investment returns, offering the promise of a comfortable and possibly early retirement for millions of diligent savers. But a large portion of those gains vanished practically overnight as it became clear that the spread of COVID-19 would trigger a sharp rise in unemployment and a global recession. While the coronavirus pandemic is unprecedented, the advice for savers remains the same: Keep calm, don’t change your investment mix and, if you can afford it, continue to contribute to your 401(k) or other retirement-savings plan. One of the most-effective ways to invest in a declining market is through dollar-cost averaging — investing the same amount of money in the same investments on a regular basis. If you’re contributing a portion of each paycheck to a 401(k), you’re already employing that strategy. Here’s why dollar-cost averaging works: When stock prices are low, you buy more of them, and when stock prices are high, you buy fewer shares. When you look at your account statements, “concentrate on the number of shares you have in your account, not your account value,” says David Mullins, a certified financial planner in Richlands, Va. Remember, too, that the account value is meaningless unless you need to sell today, he says. The penalty waiver. If you’ve lost your job or been furloughed, you may be tempted to tap your retirement savings to cover expenses. Ordinarily, this triggers taxes and early-withdrawal penalties if you’re younger than 59½ (or 55 if you’ve lost your job). But the coronavirus stimulus package makes such withdrawals a little less prohibitive. Through December 31, you can withdraw up to $100,000 from your traditional IRA or employer-provided retirement plan without paying the 10% early-withdrawal penalty. You’ll still owe taxes on the money, but the law allows you to spread the tax bill over three years. You can also repay the amount of the distribution over three years. Even with this relief, you still risk selling stocks or funds at a steep loss, which could inflict permanent damage on your savings. For other suggestions on how to come up with emergency money, see 9 Ways to Raise Cash Quickly. SEE ALSO: Sell in May and Go Away: Should You in 2020?