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What the Longest Bull Market Means for Retirees

On Aug. 22, 2018, the investment world hit a milestone. The date marked 3,453 days since the end of the 2009 recession and made the current period of growth the longest-lasting bull market in history. Although any period of rising stock prices can be considered a bull market, they are typically measured as a time period in which market values rise at least 20 percent after a decline of 20 percent.

The bull market has been a boon for workers who have money invested in stock funds through their 401(k) and IRA retirement accounts, however experts caution that the double-digit gains run won't last forever.

"Don't get deceived by it being such a long bull market," says Greg Hammer, CEO and president of advisory firm Hammer Financial Group in Schererville, Indiana. "Markets are going to correct. I don't know when and how much, but it's going to happen."

[Read: How to Cope With Stock Market Declines in Retirement.]

If you're in or near retirement, a market correction can severely impact your savings. To stay prepared, experts recommend following these tips.

Older workers: Preserve gains. For workers in their late 50s and early 60s, the nearly 10-year bull market has resulted in healthy account balances. "I'm sitting down with people who, nine years ago, had half a million dollars and now they have $1.2 million," says Elijah Kovar, financial advisor and founding partner of advisory firm Great Waters Financial in Richfield, Minnesota.

"They've had some good luck running up to their retirement," says Jim Benedict, senior wealth strategist with financial firm PNC Wealth Management. Pre-retirees now need to take steps to preserve those gains. That means reallocating funds that may have become unbalanced over the years. For instance, aggressive growth funds may now make up a larger percentage of a person's portfolio and may need to be adjusted.

The right investment allocation can vary depending on a person's financial situation and expected retirement date. However, Kovar advises that as long as people have enough money in cash or stable funds to ride out a market downturn and recovery, which could last as long as five years, they should be able to invest the rest of their money more aggressively.

Remember: There are three types of risk for retirees. Retirees have moved beyond the accumulation phase of saving and now need to rely on withdrawals to pay monthly expenses. "In distributions, the rules change," Hammer says. Smart investing at this stage of life is less about performance and more about managing risk.

That risk takes three forms: market risk, inflation risk and sequence risk. In the midst of a bull market, retirees may be tempted to leave their money in growth stocks. However, that leaves them vulnerable to market risk, which is the loss of money should investments begin to perform poorly.

[See: How to Pay Less Taxes on Retirement Account Withdrawals.]

Even more concerning is sequence risk, which refers to the dangers of withdrawing money early in retirement during a bear market, when stock values decline at least 20 percent over a period of two months or more. "Once you start withdrawing money in a down market, it can be a critical injury to your portfolio," Benedict says. Even if the market rebounds, your fund balance might not if you have been taking withdrawals.

Both of these risks can be managed by moving a portion of money from aggressive growth funds to stable value funds, bonds or other less volatile investments. However, move too much and you could fall victim to inflation risk, which means your money doesn't keep pace with the cost of living.

"You still need a sufficient amount of stock to avoid inflation," Benedict says. He estimates a household's personal expenses can double every 20 to 22 years because of inflation.

Avoid emotional decisions. Hammer says the long bull market shouldn't make too much of a difference in how people approach their investments. Money management shouldn't be dictated by market trends, but by a person's time horizon, he says."(It's) when you're going to need the money and how you're going to use it."

While a person's retirement strategy shouldn't change because of a period of growth, pre-retirees and retirees may be reluctant to remove money from a hot market. "(People) feel so good when they're making money in the market," Kovar says. "We've forgotten the pain of what happens when the markets drop."

That pain could be exacerbated by making emotional decisions once stock values start to dive. Rather than reacting by pulling money impulsively out of funds, pre-retirees and retirees should have a plan in place for how they will respond when there is an inevitable shift to a bear market. Kovar says that plan should include having a fully funded emergency savings account with money to cover three to six months of expenses as well as enough cash in conservative funds, bonds and annuities to wait out a recession.

[See: 10 Costs to Include in Your Retirement Budget.]

Staying prepared for an economic downturn means potentially missing out on some gains from the current market, but Kovar says older workers and retirees need to accept that. As he tells his clients, "It's OK to take some of your chips off the table when things are really good."

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