You should fear a bear. The S&P 500 has turned in 16% average annual gains over the past three years, propelling the typical 401(k) balance to a record high this year, Fidelity reports. For workers 55 or older, it’s $255,000, nearly double what it was in March 2009, the depths of the bear market. What stocks have in store now is crucial for early retirees, who might be inclined to count on continued high returns out of the gate. But stocks are looking expensive. Based on a conservative price/earnings ratio developed by Yale economist Robert Shiller, which uses 10 years of averaged profits, stocks are forecast to return 5% a year over the next decade. That could include down years as well. Here’s why the market matters so much. Early on in retirement, you tend to spend more freely, as you can finally do all the things you were too busy to do when you worked: travel, eat out more, or indulge a costly hobby. After you hit your mid-70s, your outlays start to drop, even when you take health care spending into account. People 65 to 74 spend 37% more than those 75 and older do, according to the Consumer Expenditure Survey. Retire young, and you’re starting those free-spending years early. At the same time, crafting an income is trickier. Not only can’t you take Social Security until age 62, you’ll lock in a higher payment if you wait until full retirement age to claim (66 for a 60-year-old today; 67 for those born in 1960 or later). If you’re eligible for a pension and collect before 65, you’ll have to settle for as much as 30% less. So you’re especially dependent on your investments for income. What to do Hold out for a bigger check. As you navigate these bridge years, you’ll be better off if you can rely on your own resources first. For every year you delay taking Social Security until age 70, you’ll collect an 8% bigger benefit. From then on, you can enjoy an annuity payment, in essence, that’s indexed to inflation. That’s worth waiting for. Be willing to change. With bond yields low, a portfolio withdrawal rate that starts at 3% and adjusts for inflation is considered safer than the traditional 4% rule, says retirement researcher Wade Pfau. And that’s for 30 years, not the 35- or 40-year time horizon of an early retiree. For that, a safer rate dips to a measly 2.6%. When you’re living entirely on withdrawals, 2% to 3% won’t cut it (unless you’ve saved a lot of dough). Simply boost your withdrawal rate, though, and you run a high risk of running out of money. A 60-year-old couple earning $120,000 today a year and hoping to live on 70% of that, say, would have to withdraw 7% initially from a $1.2 million portfolio. But even if they cut back to 4% when full Social Security kicks in at 66, the chances of their money lasting until 90 drop below 50%. To improve those prospects, get by on less. If the 60-year-old couple can live on 60% of their income, they can drop their withdrawal rates to 6% before claiming Social Security, then 3%, doubling their shot at success. Crucially, if you allow yourself a higher withdrawal rate early on, you must cut back when Social Security kicks in. And since your spending patterns and market returns will undoubtedly vary, stay flexible. “This isn’t something you do once and forget about,” says planner Schroeder. “You need to review your income plan at least annually.” Fear the bear. The other challenge is how to allocate your portfolio. In provocative new research, Pfau and Michael Kitces, director of research at Pinnacle Advisory Group, make the case for starting retirement with just 20% in stocks and gradually buying more over time. Do this, and chances are you’ll stretch out your savings a few more years and, more important, protect yourself from crippling anxiety and steep losses at the outset. If a bear strikes early, you preserve capital and buy stocks on the upswing. If you retire into a bull market, you will miss out on some gains. But your overall odds are still better. “Heads you win, tails you won’t lose,” says Kitces. Shifting money into stocks as you age may be too counterintuitive for you to pull off. A 50% or 60% stock stake that you gradually trim is also a good approach, says Vanguard investment research analyst Colleen Jaconetti. “In 2008, if you had been 50-50, you’d be ahead of where you are now,” she adds. You’re walking a fine line. It’s hard to make your money last without the higher returns stocks can provide. But you need to preserve what you have. A bull market later won’t make up for early losses, says Jaconetti.