Even as the treacherous bear market of late 2000s decimates many portfolios, those near retirement are particularly affected and remain deeply concerned about how to manage the tight rope walk of executing a bear market retirement? How does one stretch the dollars that are now left in the portfolio and continue to make it grow, now that one of the long term wealth building vehicles, the stock market, is in a nasty mood in response to the financial and economic troubles in the global marketplace?

To chart the course to retirement and into retirement during a bear market, it is important to assess:

1. What is the current size of the portfolio vis-a-vis what you need for retirement?
2. What are the growth vehicles that are available and what are their real growth prospects versus risk?
3. What are the safe havens for the cash you want secured?
4. What are the income sources into which you can invest your money for income during your retirement?

Current size of Portfolio vis-a-vis Needed size

The start of any retirement analysis, including one for a bear market, is with an assessment of the size of portfolio required to retire comfortably. Of course, to make this assessment, one needs to have some idea of the rate of return one can comfortably get from a given portfolio.

Investing in long-term government bonds is likely to yield returns in the range of 3-4%, and thus 4% is a very reasonable number to pick to calculate required income from a given portfolio. Thus if $100,000 is needed in retirement, a portfolio of $2.5 million is required. In reality, inflation indexed returns is a better way to calculate the needed size of portfolio to compensate for loss in purchasing power over the years.

Growth vehicles available and risks in a bear market

In a bear market, the primary vehicle that declines is the stock market. This happens because the economic prospects of individual companies and their corresponding profitability take a hit, and thus the valuation of the companies decline. Usually, recessions tend to last less than a year and stocks of companies may end up being bargains. However, if deep structural imbalances need to be addressed - such as excessive debt, over-investment in certain sectors, instability in financial markets - then recessions are likely to last for a decade or more.

It is in the latter situation that it may be advisable to completely abandon stock markets as a place for your hard earned dollars.

In response to difficult recessions, the US Federal Reserve and world central bankers routinely lower short-term interest rates and take actions to lower the interest of long term loan instruments as well. The expectation is that lowering the cost of capital will stimulate the risk appetite of investors. Of course lowered economic activity makes debt harder to pay off and thus a vicious cycle sets in, especially if the economic malaise lasts for a long time.

In such times, if financial stability is not a concern, one can seek income producing investments such as options based mutual funds, special debt strategy based funds and more. If financial stability is a concern, then staying with long term Treasury bills is your best bet.

Safe havens for Cash

During deep recessions or depressions, safety of your capital should be of paramount importance, and cash equivalents are the best place for your money. The usual options are:

1. Cash in FDIC insured (or other government insured) bank accounts of stable banks, denominated in major currencies such as dollar and euro.
2. Gold and silver coins
3. Multiple government bonds of 6-9 month maturity
4. Money market funds and CDs
5. Cash on hand

Keeping some money outside your country of residence is always helpful, especially if government rules for transfer of money begin getting stringent.

Income sources to invest money in retirement

Simply put, there are a variety of areas where money should be invested during retirement:

1. Stock Market
2. Bond Market
3. Closed end special situation mutual funds (debt strategy, options strategy)
4. CDs
5. Treasury bonds - Inflation adjusted
6. Cash equivalents
7. Rental properties(if feasible)

The aim is to diversify money between safe havens and various income producing investments - from highly conservative to more speculative.

The above type of mix can help you weather most financial storms that come your way and secure a reasonable income during retirement.