People will sell off their portfolios to do multiple things: Buy government notes, savings accounts, fixed annuities.
What I think you may be underestimating is the ripple effect from a significant, ongoing, and growing sell-off. As more and more people sell of their portfolios (and all of those funds that all contain individual stocks), that creates downward pricing presure. At first it will be slight, and will be coutnered by people buying bargains (as was mentioned).
But if that price pressure is maintained by an increasing amount of sellign, eventually it will cause a slow-down in buying as well, as people begin to be concerned about a bubble bursting like we had with technology stocks on the NASDAQ (Remember when is was over 5000, and now is around 2000?).
Investors are a jittery lot. They look for trends, and they try to protect their own investments from losses. When they see the increasing sell pressure, they will bail; just like they bailed from technology funds.
Add in some other major “pucker factors” like GM being on the edge of bankruptcy, and Ford in dire straits… Or the fact that the Pension Guarantee fund is in the red, and that does not consider any drain on it should GM file Chapter 11, or Delta Airlines; people will be being extra-cautious with their remaining retirement funds, and will run screaming at the first sign of a sustained dip in the market…