John is ready to retire. He's in his early 60s, has a good pension from years of being a teacher, has a nest egg of about $400,000 spread...

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John is ready to retire. He’s in his early 60s, has a good pension from years of being a teacher, has a nest egg of about $400,000 spread into 18 different stock funds, and says he is ready for a change.

Sitting in an investment seminar recently, he had just one question: “Is this a bad year to retire?” John’s question was brought out by a slide show on how entering the “distribution phase” of your financial life at the wrong time can ruin your nest egg.

The idea is that if you must withdraw funds from your retirement savings — the money you were counting on to keep making money to pay for your golden years — at a time when the market is in the tank and sucking additional dollars out of your portfolio, you can ruin a life of financial planning right off the bat.

It’s a reasonable question in a year of market uncertainty. Watching your mutual funds unravel some of their past gains — and John acknowledged that with 18 stock funds, he had too many issues and too little diversification — it’s tough to get comfortable with the idea you are about to live off the money, rather than simply adding to it. That’s when the reality of potential shortfall hits.

With the front edge of the baby-boom generation now at retirement age and the economy and stock market seemingly in the tank and likely to struggle for a while longer, investors can suddenly envision the worst-case scenarios that financial advisers routinely talk about.

The common example shown by financial advisers dates to the 1970s, when the stock market fell 50 percent from January 1973 to January 1975; for someone who planned on retiring in 1975, that drop in prices would have required a drastic change in life plans if the nest egg was the entire source of retirement income.

And that was the 1970s, long before workers were as reliant on their own savings as they are today, thanks to the erosion of the pension system.

“If you need to use some of the same money that you need to grow to pay for the rest of your life, you’ve got a problem,” says Paul Arnold, managing director of the Unified Cos., a financial-services group in Cincinnati.

The specific funds are less important than the asset allocation.

“When you are putting together your retirement plan, you don’t say ‘I am going to retire at age 62, unless of course the three years after I retire will be a bear market,’ ” says Judy Shine of Shine Investment Advisory Services in Lone Tree, Colo.

“You need to set aside at least three years worth of money — I prefer six years — and invest that in things that barely wiggle, and then take the rest of your savings and put it into the kinds of things that sometimes throw up. … The steady money protects you against a downturn, and the more volatile money will have enough time to recover and grow, letting you replenish what you are spending in time.”

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at or Box 70, Cohasset, MA 02025-0070.