My wife and I plan to move/downsize, and in the process, will end up with excess equity from the sale of our house even if we buy a new house elsewhere. My thought was to use this additional cash to buy into equity mutual funds and get us some stock exposure. As long as you don't have to sell in a down market, you can still end up with dividends, although in a really bad stock market, those too will go down.
Yup. People are different in what peace of mind they need in order to be able to sleep well at night. For me, faced with having no income, having lost my consulting gig when I was 51, no unemployment comp, over a decade away from the earliest I could collect social security, and my investments having lost around 50% of their value in the 2007-2009 downturn, I did have to think twice before turning down an opportunity to go back to work. I did manage to sleep pretty well through it all though.