Personal Finance

What Happens to Your Retirement Plans If the Stock Market Drops 50%?

Maurie Backman

Published: March 17, 2025 8:44 am

Investing in the stock market isn’t for the faint of heart. A market crash could happen at any time, sending your portfolio value plummeting.

That’s a scary enough thing to happen when you’re working and are in the process of trying to build retirement wealth. But when you’re actually retired, a stock market crash could be financially devastating.

Now when the stock market takes a tumble, it doesn’t necessarily lose 50% of its value. The market could crash and drop 20% or 25%.

But even that’s a potentially large hit to a retirement portfolio. So it’s important to accept that risk and try to make your peace with it.

In this Reddit post, we have someone who’s wondering how a stock market crash might impact their retirement plans. And the answer is, it’s a very real and valid concern. But there are ways to protect yourself in that situation.

It’s all about having the right mix of assets

When you’re in the process of accumulating wealth for retirement, it’s a good idea to go heavy on stocks, because your portfolio needs to grow. Once you’re actually retired, though, it’s important to have a smaller concentration of stocks in your portfolio.

The reason? At that stage of life, you’re using your savings for income. So you can’t afford to have 90% of your portfolio in stocks in case a major market crash occurs. If you’re then forced to sell those stocks at a loss because you need the money, it could impact your finances long-term.

What you should aim to do instead is scale back on stocks as retirement nears so that by the time you’re no longer working and living off of your portfolio, you’re maybe 50% to 60% invested in stocks. The rest of your portfolio can sit in bonds and cash.

Then, if the market tanks and your stock values drop, you can use your bond interest as income, or even sell bonds for cash. Bond values don’t necessarily fall during a stock market crash, so they’re a good hedge. And even when bond values drop, that doesn’t tend to happen to an extreme overnight.

It’s also extremely important to keep at least one to two years’ worth of living expenses in cash as a retiree. Some stock market downturns last longer than others. But if you have a nice amount of cash on hand, you’ll be positioned to withstand a longer recovery if need be. You may even want to keep three years’ worth of cash on hand, depending on your personal risk tolerance.

Consult a professional for help

It can be a scary thing to see your portfolio value take a dive during retirement. For that reason, a good bet is to consult with a qualified financial advisor before retirement and have them help you assemble a portfolio that’s designed to withstand a stock market crash.

A financial advisor can not only make sure your portfolio is appropriately diversified, but they can also help you load up on income-producing assets that give you access to money when you might need it. Plus, they can talk you through market events, because sometimes, even the most seasoned investors need a bit of reassurance.