# Riding out a bear market in retirement: the playbook One day, and this part is certain, your plan will meet its first real bear market as a retiree. Expect −25%, −35%, maybe −45% in real terms, with the headlines on a loop and everyone around you "moving to safety". That day, what separates one plan from another will not be the allocation. It will be whether there is a **playbook**: the written list of what you do, in what order, while the storm runs. [[when-to-worry]] laid out the steps. This chapter is the crossing itself, the years spent inside the bear market, from the first black Monday to the return of calm. The chapter runs in order. Bear markets come in three shapes (the fast crash, the long grind, the inflationary one) and you do not ride them out the same way, so anatomy comes first. Then week 1, the art of doing nothing on purpose. Then the mechanical moves at the bottom: the buffer running on its own rules, the rebalancing that buys low, and tax-loss harvesting, the tax break of the bottom that almost nobody picks up. Then the contrarian opportunities that are legitimate, gifting at the bottom among them, which moves more shares for the same allowance. Then the psychology of getting through it as a couple. And the exit, where you climb back down the steps in reverse, refill, and turn the storm you lived through into durable confidence ([[voices-from-real-retirees]]: one crossing survived is worth every simulation). ::: cle The storm doctrine Everything that had to be decided was decided in advance, while calm ([[building-your-plan]]). The storm is an execution phase. You follow the list, you do not deliberate. The list holds three kinds of move. The mechanical ones first (buffer, bands, taxes), fired by thresholds and not by opinions. The spending steps next, switched on if and only if the warning lights demand it. And the never-dos, the most important category of the three: what you never do, written down in plain words, reread every time the itch comes back. ::: ## The anatomy: three bear markets, three crossings Bear markets come in three shapes ([[market-regimes]]), and mistaking one for another is what drives the bad moves. **The fast crash** (2020, 1987: −30% in weeks, back up in months) is the most spectacular and the least dangerous for a retiree with the right tools. The buffer absorbs a few quarters of withdrawals. Rebalancing buys the bottom. It is all over before the spending steps ever had to switch on. Its one real threat is panic selling in the first few days. **The long grind** (2000 to 2009, the lost decade) is the real test. Years of mediocre markets, with the current rate drifting up slowly ([[when-to-worry]]: amber that settles in). You win that crossing with the spending steps and side income, not with the buffer, which is far too short for it ([[cash-buffer]]). **The inflationary bear** (1973 to 1981, 2022) is the sneakiest of the three. Prices climb while everything falls: the squeeze, spending rising with inflation while the portfolio stalls ([[inflation-and-withdrawal-rates]]). Getting through it calls on the indexation freeze and the regime sleeves as well ([[inflation-protection]]). This is the bear the portfolio held linkers, gold and trend for. Selling them "because they are up" to buy back what is down is exactly what they are there for. Rebalancing is how you harvest the insurance. ## Week 1: the art of doing nothing on purpose The first days of a crash carry most of the behavioral risk ([[the-psychology-of-spending]]: capitulation costs more than the crash). You write the routine before you need it, and it comes down to five moves. The media fast. You cut the financial news, because the plan has no decision to make on a twenty-four-hour cycle. The information that matters, your warning light, is computed without it. The reread. The one-page plan, never-dos block first, was written for exactly this evening. The warning-light check. You look at the current rate, its color, and nothing else. In the vast majority of crashes the color stays green or turns amber, which means no spending action at all. The sentence you say to each other ([[couples-and-family]]). Out loud, explicitly: "the plan covers this scenario, we follow the list, we decide nothing this week". The reminder about the fan. Your simulation held paths worse than this one, and the plan survived them ([[reading-a-fan-chart]]). What is happening is not an anomaly. It is one of the futures you planned for, arriving. ## The mechanical moves at the bottom Once the first week is behind you, the storm has work to do. Every piece of it fires on a written threshold, and all of it takes an hour a month. **The buffer on its own rules** ([[refilling-the-buffer]]). Withdrawals move to it when the drawdown crosses the threshold. Not before, which would waste it on an ordinary correction. Not never, which would amount to protecting it by selling stocks, the fatal inversion. And no refill while the market is still falling. **Band rebalancing, the scheduled purchase at the bottom.** When the equity sleeve breaks through its lower band, the rule sells defensive assets to buy stocks on the way down. It is the most counterintuitive move in the book and the best paid ([[stock-bond-allocation]]: the mechanism that makes the allocation deliver on its promise). It happens because it is written down, since nobody ever feels like doing it. The gentle version, which steers refills and withdrawals instead of trading big blocks, is enough most of the time. **Tax-loss harvesting, the tax break the bottom hands you.** Almost nobody takes it. You sell the lots of a taxable account that sit at an unrealized loss, then buy back. The realized loss offsets gains, this year and, in most tax codes, in later years too. The portfolio itself has not moved, since the line goes straight back on. One caution: rebuy too soon and the local rules may disallow the loss, so an equivalent but not identical fund keeps the argument from ever starting ([[us-taxes-in-the-withdrawal-phase]]). A pile of losses harvested in 2033 covers the gain harvesting and the sales of the decade that follows. A 25% hole in a recently built taxable account, harvested cleanly, pays for years of selling at no tax cost. The storm leaves loot behind. **Gifting at the bottom.** Gift allowances are written in money, not in shares. Handing over stock when it is down 30% moves 40% more shares for the same allowance, and the whole recovery then happens inside your children's estate. The bottom is the best moment to execute a transfer you had already decided on, never a moment to improvise one. That rule holds, storm or no storm. ::: attention The never-dos, reread at the bottom The list from block 6, in its storm version, comes to five never-dos. Never sell outside the rules, because "moving to safety" at the bottom is the six-figure mistake. If the urge turns physical, the only relief valve allowed is cosmetic and written in advance: push the portfolio check out a week. Never change a rule or the allocation during a drawdown, because redesigns are decided while calm and a plan v2 conceived in fear is always the worst plan there is ([[choosing-your-strategy]]). Never "wait for the rebound" to run a mechanical move that is due, because rebalancing and harvesting are not timed by feel. Buy nothing new, because a bear market sells "opportunities" (whatever structured product is going around, bombed-out stocks, leverage) and the portfolio takes in nothing that was not in the plan. And do not resimulate every week, because a ruin number recomputed at the bottom terrifies without informing. The model already contains this path, and a fresh simulation belongs to the review ([[the-annual-review]]). ::: ## The long crossing, and the exit If the bear market settles in (the long grind or the inflationary one, the amber years), the crossing turns into a degraded cruise. The steps go up when the warning lights demand it ([[when-to-worry]]): the gentle moves first, then the written cut, then income, in order and with their delays. The check goes monthly. The log records three lines a month, the raw material of the post-mortem. And life goes on, because the fun line of the budget never falls to zero, not even at step 2. Five years spent holding your breath does more damage than the market ([[the-psychology-of-spending]]). The accounts from the 2008 to 2012 veterans say the same thing over and over: the plans held, but the people wore out, because they had stopped living while they waited for the rebound. The exit is flown like the entry, on thresholds and in reverse order. The cut is lifted when the rate falls back under the threshold, with the hysteresis. Indexation restarts. The buffer refills in calm weather ([[refilling-the-buffer]]). The check goes back to quarterly. The post-mortem at the next review closes the episode: what worked, which threshold chafed, and plan v1.1 takes two or three adjustments from it, made while calm. The log then records the line that is worth its weight in gold next time: "we got through it. Here is how". A first storm survived is an asset. It turns a simulator's probabilities into confidence you have lived, and no chapter of this book can do that for you. ::: exemple 2008 to 2009, replayed with the playbook A retiree in 2007: $1.5M, a 65/35 allocation, $52k a year of spending, a 24-month buffer, and a written plan. In October 2008 the market loses 30% in six weeks. Warning light at 4.9%, amber. Week 1: media fast, reread, nothing. In November the drawdown crosses 18% and the buffer takes over the withdrawals, a mechanical move. In December the equity band is breached. Rebalancing sells $60k of bonds to buy stocks down 40%: written, executed, hated at the time. In January 2009, tax-loss harvesting on the taxable account built in 2006 and 2007: $85k of losses banked. In March 2009, at the bottom at −50%, the warning light reads 5.6%, red confirmed, and the written cut of −12% applies. It is the only real sacrifice of the whole crossing, and it lasts eighteen months. 2010 is the exit. Cut lifted, buffer refilled over 2010 and 2011, the banked losses offsetting the gains of the years that followed. The tally in 2012: the portfolio has recovered and the plan never came near its cliff. The $60k rebalanced in December 2008 has doubled. The crossing cost eighteen months at −12% and returned a stock of tax losses, a golden rebalance, and confidence for good. That is what a storm looks like to a plan that had its list. ::: ## The essentials - Three bear markets, three crossings: the fast crash (the buffer and your nerves), the long grind (the steps and side income), the inflationary one (the indexation freeze and the regime sleeves, harvested by rebalancing, which is what they are for). - Week 1 is behavioral: media fast, reread the page, check the warning light, say the sentence out loud, remember the fan. That is doing nothing, on purpose. - The mechanical moves at the bottom: the buffer at its thresholds, band rebalancing (the scheduled purchase at the bottom, profitable because it is written down), tax-loss harvesting (losses banked and carried forward, the loot the storm leaves), and gifting at the bottom if it was already decided. - The never-dos, reread: no selling outside the rules, no redesign during a drawdown, no timing the moves that are due, no "opportunity" buys, no weekly resimulation. - The exit climbs back down the steps in reverse, refills in calm weather, and closes with a post-mortem made while calm. A first crossing survived is the plan's permanent psychological asset: "we never had to be brave. We only had to follow the list". --- ## Going further - Early Retirement Now, Part 37 ("How to deal with a Bear Market in Retirement"): the quantitative treatment of the question ([[the-ern-series]]). - The forum accounts of the 2008 to 2012 and 2020 crossings ([[voices-from-real-retirees]]): the field, mistakes included. - In this book: [[when-to-worry]] (the warning lights and the steps), [[refilling-the-buffer]] (the buffer in action), [[the-psychology-of-spending]] (the real opponent).