If you're following modern portfolio theory you shouldn't be looking to sell certain parts depending what the market is doing. The important thing is to keep your asset allocation, which a target fund will do even when you sell it. That's how you reduce risk. Anything else is market timing.
I subscribe wholeheartedly to this theory, but I think this is a circumstance that warrants consideration. Another way to think of it is re-balancing the portfolios.
On the prior page, we've been discussing using future contributions to shift our allocation mix. It's a method I and many others use, so that we are not timing the market with big allocation shifts but rather future investments over time.
When you transition from contributing to retirement to drawing down your retirement savings, the same principles apply. We will have a targeted mix of assets and will be continuing to manage that mix. A big market crash during retirement will drop the % of stocks by a large margin, well outside of the 5% thresholds we've been discussing for target allocation mix.
So if we're following standard re-balancing methods, we'd do one of two things to shift the allocation back: shift some money from bonds to stocks, or move our withdrawals from stocks over to bonds, until the balance is roughly restored. The latter is what I was talking about.
This has the side effect of reducing withdrawals on stocks when the market is low, and returning them when it (and targeted allocations) return, but that's not the framing I had in mind. (Though reading my prior post, I didn't make that as clear as I had intended.) The goal is to maintain your target allocation mix.
If you are in a target date fund that will re-allocate to a mix you are happy with, you can just let this happen. Personally, I plan to hold a larger share of stocks in retirement than most target date funds hold, so I will need to do the re-balancing myself. I plan to use withdrawals to do so, just as I use contributions to re-balance now.
