My savings dropped $40,000 after I retired. Do I stop withdrawing?

The question

An illustrative letter.

The answer

My dear, I am sorry for those sleepless nights. Watching your savings fall just after you stopped earning a paycheck is one of the most unsettling things a retiree can go through. You did nothing wrong. Markets fall, and they do not check our retirement dates first. What matters now is not the $40,000 on paper, but the next few decisions you make about it.

Why does a drop early in retirement hurt so much?

Planners call it sequence risk. When you are still working and adding money, a market fall is painful but temporary: you keep buying, often at lower prices, and you wait. Once you are retired and withdrawing, a fall in the first years is different. Every dollar you take out while prices are down is sold at a low price, and those dollars are not there when markets recover.

That is why two retirees with the same average returns over twenty years can end up in very different places, depending on whether the bad years came early or late. You cannot choose when the bad years come. You can choose how you respond to them.

Should I stop withdrawing?

You still need to eat and pay your bills, so stopping entirely may not be possible, and going without what you need helps no one. The goal is to avoid selling stocks while they are down, if you have another place to draw from.

Look at what your savings are made of. Most retirement portfolios hold some mix of stocks, bonds and cash. For the next while, many people take their monthly withdrawals from the cash and bond portions, leaving the stocks untouched so they have time to recover. If your account has a money market fund or bond fund inside it, ask the company that holds your account how to set your withdrawals to come from there first.

If everything is in stocks, take only what you truly need, and look at whether the mix is right for you going forward.

Can I trim spending for a season?

This is often the most powerful tool a retiree has. Even a small cut in withdrawals during a down market leaves more invested for the recovery. Look at the extras: travel, large purchases, gifts and subscriptions. Delay what can wait. A year of slightly leaner living can protect many years of comfortable living later. The checklist further down lists the steps in order.

Should I go back to work?

It is worth considering, even part time. Every dollar you earn is a dollar you do not have to withdraw while prices are low. Many retirees find a few hours a week of paid work also brings structure, company and a sense of purpose.

If you are already collecting Social Security and you are younger than your full retirement age, know the earnings test. In 2026, Social Security withholds $1 of benefits for every $2 you earn above $24,480. That money is not lost: your benefit is recalculated upward when you reach full retirement age. Once you reach that age, you can earn any amount with no withholding.

If you have not yet claimed Social Security, the drop may also be a reason to think about the timing. For each year you wait beyond full retirement age, up to 70, your monthly benefit grows by about 8 percent, and it lasts for the rest of your life. Using some savings or part-time earnings to delay can mean a larger guaranteed income later. Your full retirement age and estimates are in your account at SSA.gov.

Should I move everything to cash so it cannot fall again?

That is the most natural feeling in the world, and usually the costliest. Selling everything after a fall turns a loss on paper into a permanent one, and leaves nothing invested when markets recover. Markets have fallen sharply many times and, over long periods, have recovered, though no one can promise when.

That said, if a fall like this keeps you awake for weeks, your mix may hold more stocks than you are comfortable with. Once things settle, it may be worth adjusting it gradually, with a plan rather than in a moment of fear.

How do I soften the next fall?

Many retirees keep one to two years of planned withdrawals in cash or very safe investments, apart from their stocks. When markets are up, they refill that reserve by selling some stocks. When markets are down, they live on the reserve and leave the stocks alone. It does not make the market smaller, but it gives you a cushion so you never have to sell at the worst time. When stocks recover, rebuilding that reserve comes first.

A fiduciary financial planner, one legally bound to act in your interest, can help you set this up, and some charge a flat fee for a single review.

What happens next?

Six months is a very short time in a retirement that may last thirty years. You have time, you have choices, and you have already done the hardest part, which was saving. Go easy on yourself, take the next step calmly, and let the wind chimes be the only thing that keeps you up at night.

One thing to do this week

Call the company that holds your savings and ask which investments your monthly withdrawal is being sold from.