Should you go ahead with your retirement plans if there's a stock market crash?

Katie Brockman
The Motley Fool

The S&P 500 officially entered a bear market after falling more than 20% from its peak in early January, and some investors are worried a crash or even a recession could be looming.

If you're nearing retirement, all of this market volatility can be especially unnerving. When you're going to be relying on your savings, watching your investment portfolio drop in value can be tough to stomach.

It's uncertain what will happen with the market in the coming weeks and months, and nobody knows whether we'll face a recession or not. But if stock prices do continue to fall, is now really the right time to retire? It depends on a few factors.

BEAR MARKET AND RETIREES:  How seniors can protect savings against stock plunge

Should you retire now or wait?

It can be tough to retire during a market downturn, because your retirement fund may be worth less than it is when the market is thriving. That means you might need to reduce your spending to avoid draining your savings too quickly.

Before you retire, consider how much of your income will come from your savings versus other sources, such as Social Security or a pension. If the majority of your income will be coming from your retirement fund, think about how long those savings may be sustainable if the market continues its slump.

Also, market downturns can sometimes last months, if not years. If we do enter a recession and your savings take a hit, would you still have enough to last not only until the market recovers, but the rest of your retirement?

If you have a strong nest egg and expect to receive a decent amount from Social Security, you may be able to retire comfortably regardless of what the market is doing. You might still need to scale back on your spending if the market worsens, but that doesn't necessarily mean you can't retire now.

BEAR MARKET INVESTMENT STRATEGY: How to work around this market

When you should consider delaying retirement

If you're eager to get a jump-start on retirement, the last thing you may want to do is work a few more years. But if your savings are falling short, holding off on retiring by even a year or two can make a significant difference.

Not only can this strategy help you save more, but it can also help you avoid draining your retirement fund when it matters the most.

When the market dips, stock prices are at their lowest. This makes market downturns a particularly bad time to withdraw your money, because you're selling your investments for less than you paid for them. If you retire during a market slump and have to start withdrawing money, you may have no choice but to lock in those losses.

On the other hand, if you wait to retire, you can avoid tapping your investments until stock prices recover. By continuing to invest when prices are low, you can also invest at a discount and see significant returns once the market bounces back.

HOW DOES A RECESSION AFFECT YOU? It could be harder to get a loan and more

How to protect your investments

Regardless of whether you choose to retire now or wait, there are steps you can take to keep your money as safe as possible.

First, make sure your asset allocation is appropriate for your age. Asset allocation refers to how your investments are divided between stocks and bonds. As you get older, it's wise to gradually shift your portfolio so that you're allocating less money toward stocks and more toward bonds.

Bonds generally see much lower returns than stocks, but they're also less affected by market volatility. If the market crashes, an appropriate asset allocation can help cushion the blow and prevent you from losing a lot of money.

Finally, try your best to maintain a long-term outlook when it comes to downturns. Regardless of what happens with the market, it will recover eventually. By staying calm, focusing on the long term, and taking steps to prepare your investments, you can rest easier knowing you're making the best decisions for your situation.

WHY ARE TECH STOCKS DOWN? Snapchat and others report earnings miss

Offer from the Motley Fool

The $18,984 Social Security bonus most retirees completely overlook:  If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.