It might be time to review your asset and retirement income allocations.
getty
If you’re retired, the recent significant gains in the stock market look like a reason to celebrate. During 2025, for instance, the S&P 500 gained 17.9% when including the return from dividends. What’s more, the S&P 500 earned double-digit returns in 2023 and 2024 and for six of the past seven years.
In 2025, however, the S&P 500 fluctuated significantly due to concerns about tariffs and layoffs. In addition, the return on the S&P 500 could have been down 5% or more, depending on which day you checked. Adding to retirees’ stock market anxiety are predictions from some experts that the stock market is currently overvalued and is soon headed for a significant decline.
If you’re wondering what to do about your retirement investments, then a good first step is to look at the stock market’s historical returns. Then we’ll explore possible strategies to consider.
Most Of The Time, But Not Always, The Stock Market Has Earned Positive Returns
Figure 1 in the chart below shows the annual return in the S&P 500 each year since 1926, including the return from dividends. This chart provides a visual of the following conclusion: Most of the time, but not always, you’ll earn more money by remaining invested in the stock market.
Learn from 100 years of stock market history.
Steve Vernon
The numbers confirm the stock market “double-double” advantage:
- There are far more years of positive returns than negative returns. For a period of 100 years, the score is 74 positive years to 26 negative years.
- The arithmetic average gain in positive years is much more than the average loss in negative years. The score is an average positive return of about 21%, compared to an average negative loss of about 13%.
Figure 1 also shows that if you’re invested in the stock market during your retirement, you should be prepared for some years of negative returns—it’s inevitable. Historically, however, if you were patient and stayed invested, the market eventually bounced back and you most likely would have experienced a net gain. This observation might be most relevant for retirees in their 50s, 60s, or early 70s who could be retired for 20 years or more and have the time to be patient.
Of course, what many retirees fear most is a repeat of the late 1920s and 1930s, which Figure 1 shows included serious stock market losses and volatility.
It’s important to remember that most people—professionals and amateurs alike—don’t have a reliable crystal ball that warns them when the stock market will drop or alerts them when the market is about to take off. This means you’ll need to develop strategies to protect your retirement income and lifestyle without knowing when the market might rise or fall.
With these observations in mind, let’s look at some personal circumstances for which you might want to cash in some of your stock market investments, and situations when you might not.
Retirees Who Might Want To Cash In Stock Market Investments
Some retirees might want to declare victory and shift some of their investments out of stocks and into more conservative investments, such as bonds, money market funds, low-cost income annuities, and CDs. This group could include retirees in their mid 70s or older who have a more limited investing horizon, or retirees who are very conservative with their investments.
With this strategy, you might decide that while you’ve had a good ride in the stock market, the ride is over. The S&P 500 has had positive returns in 15 of the 17 years since the 2008 financial crisis, with the one significant loss in 2022 attributable to the pandemic. You could decide that you’ve enjoyed cumulative returns far higher than what you expected when you retired and that it’s time to reduce your stock investments.
Keep in mind that if you sell your stock investments with significant gains, you could incur capital gains taxes on investments that aren’t invested in tax-advantaged retirement accounts such as IRAs, 401k, 403b, or 457 accounts.
Retirees Who Might Want To Keep Calm And Carry On
Retirees who’ve developed careful strategies to protect their retirement income during downturns may simply choose to do nothing. Here are two strategies to help protect your retirement cashflow:
- Have “enough” regular retirement income that won’t decrease if the stock market crashes. Examples of such protected income include Social Security, pensions, income annuities, and cash flow from a bond ladder. While there can be various definitions of “enough protected income,” the general goal is not to panic when the stock market crashes and sell near the bottom.
- For your regular, systematic withdrawals from invested assets, be prepared to reduce your withdrawals when the market is down and not overspend when the market is up. This can help minimize your long-term losses due to sequence-of-returns risk—the risk that you’ll withdraw so much during downturns that you won’t have sufficient assets that can bounce back when the market turns up again.
You can implement this second strategy by using a dynamic withdrawal method to determine the annual amount of your withdrawals. Such a method automatically reduces your withdrawals during downturns and limits withdrawals during upturns. The IRS required minimum distribution is one example of a dynamic withdrawal method that research shows has worked well in the past.
Refinements And Special Circumstances
Of course, there’s a middle ground between the two scenarios described above. Some retirees could make modest changes to their asset allocation, such as rebalancing investments between stocks and bonds towards a specified goal. It could also include converting some of your invested assets to a low-cost income annuity or bond ladder, while still maintaining some stock market investments. Another possibility could include building cash reserves to help ride out future downturns.
Some retirees may generate enough cashflow from interest and dividends, and they plan to leave some of their savings as a legacy after they’re gone. That could create a longer investment horizon that would lean toward maintaining stock allocations.
Finally, for some retirees, investment decisions won’t matter too much if they have most of their retirement income from guaranteed sources such as Social Security, pensions, and annuities.
The best investment strategy for you would be one that generates sufficient cashflow to support the life you want, while helping you sleep at night without fears of stock market crashes interrupting your dreams. No matter where you are in your retirement journey, it’s worth your time to periodically review your investment and retirement income strategies with these goals in mind.
