Each year that we work allows us to earn and save more money to replace capital lost in a market correction. Moreover, the money we invest toward the bottom of that correction earns a great return during the recovery.
However, in retirement—when you are not working—not only can you not replace that lost capital with future income, your predicament is compounded by three additional factors: You have less time for the market to correct itself; the loss of the market is compounded by the fact that you are withdrawing money from your portfolio to live on each year; and bear markets can lead to uncertain times, which leads to bad investment decisions.
Read MoreRetirees turn to encore careers
As a financial planner, I work with clients as they prepare to enter retirement. Like many financial planners, I utilize sophisticated financial-planning tools to project various outcomes in retirement so that I can help retiring clients answer their No. 1 question: "Will I run out of money if I retire?"
In running all the scenarios, whether using traditional straight-line financial-planning software assuming 6 percent to 7 percent average returns, or even using more sophisticated, Monte Carlo simulations, it is very possible for a client whose projections show a very high likelihood of success to still run out of money if they retire into a bear market.
A Monte Carlo simulation is a problem-solving technique used to approximate the probability of certain outcomes by running multiple trial runs, called simulations, using random variables.