I'm 55 and terrified the market will crash before I retire. Should I pull all my money out now?

Detailed summary

Pulling your money out creates a different set of risks, but there are ways to be smart about planning for a potential market crash.

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Around 53% of Americans responding to a Gallup poll (1) earlier this year said investing right now was a bad idea. Most weren't optimistic about the economy and felt like the U.S. is going in the wrong direction.

With inflation remaining persistently high (2) and many people struggling to cover the basics (3), it's not unreasonable to be worried about putting your money into the stock market. That's especially true if you're nearing retirement.

Let's say, for example, that Bill is 55, hoping to retire in a decade, and terrified that a big crash will wipe out his portfolio right when he needs it. If that happens, he's not sure 10 years is enough to rebuild.

Bill doesn't want to take any chances, given that he's saved $700,000 and plans to invest another $7,000 per year over the next decade. To protect himself, he's considering pulling all his money out of the market.

But is that the right move, or will Bill end up regretting that choice?

It's not unreasonable for Bill to worry that the market will crash at the worst time. Whether he knows the term or not, Bill is afraid of the sequence of returns risk (4). This is the risk that poor investment performance early in retirement will permanently damage your portfolio when combined with regular withdrawals.

Essentially, if your portfolio loses a lot of money early on and you take more money out, you won't have had time to earn all of the returns you would have if the crash happened later. You'll lock in your losses by selling, and you will never earn the returns on the money you had to withdraw.

This can leave you with hundreds of thousands of dollars less than planned later in retirement.

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