Retirement planning isn’t just about growing your nest egg — it’s about protecting it when the economy turns south. The ups and downs of the market can wreak havoc on unprepared portfolios, and for retirees depending on those funds for income, that volatility can be downright terrifying. Many investors learn this lesson the hard way. But it doesn’t have to be that way. By designing a retirement plan that can weather downturns, you can protect your financial future with peace of mind.
In this article, we’ll explore how to build a retirement plan that withstands market crashes, drawing on real-life experiences, strategic insights, and time-tested principles.
The Emotional Toll of Market Volatility
Retirement brings with it a new relationship to money. For decades, your portfolio may have been a source of pride, a place to take risks, or even a hobby. But the moment you retire and begin relying on your investments for monthly income, everything changes.
A client who had recently retired was growing anxious. He had always been aggressive with his investments — even managing a DIY stock portfolio alongside his advisor’s. But when markets dropped sharply, his own account plummeted, and even his advisor-managed aggressive portfolio took a hit. Suddenly, he was worried: “You haven’t made me enough money this month to pay my $7,000!”
This concern isn’t unusual. When the paychecks stop and your nest egg becomes your income source, every dip in the market feels deeply personal. And if you’re withdrawing funds during a downturn, you’re potentially selling at a loss — a fast track to depleting your savings.
Retirement Is Not the Finish Line
Many people view retirement as the financial finish line, but in reality, it’s the beginning of a whole new race — one that can last 20, 30, or even 40 years. This means that your portfolio not only needs to last, it needs to withstand decades of economic cycles, inflation, and unexpected expenses.
And this is exactly why knowing how to build a retirement plan that can survive market crashes is critical.
The Foundation: Building Stability First
Imagine building a house. The first thing you lay is the foundation — solid, dependable, unshakeable. Even if a tornado levels the home, the foundation remains. Your retirement plan should have the same resilience.
What makes a strong financial foundation?
- Guaranteed Income Sources: Start with income that’s not tied to the market. This might include Social Security and income annuities (such as indexed annuities with income riders or immediate annuities). These ensure a stable baseline of cash flow, regardless of market conditions.
- Matching Income Needs: Consider your essential expenses — housing, food, utilities, insurance — and aim to cover those with guaranteed income. This allows you to ride out market storms without panic selling.
Supplementing the Base: Income-Producing Investments
After establishing your foundation, the next step is to build the supporting walls — dependable income-generating assets that carry modest risk.
Here’s where diversification helps:
- Private Credit Funds: These alternative investments offer yields between 8% and 12%. While not completely risk-free, they tend to have low price volatility. One such fund maintained a near-constant share price over six years while consistently paying out returns.
- Structured Notes: Offering potential returns of 10–12% and downside protection, structured notes can provide a buffer in turbulent times while still contributing to your income stream.
Together, these can form a reliable income bucket that supplements your guaranteed income, offering stronger growth potential while minimizing volatility.
Growth and Flexibility: The Investment Portfolio
Once you’ve created a dependable income base, it’s time to focus on long-term growth — think of this as the walls and roof of your financial “house.”
- Tactical Portfolios: These are actively managed to prioritize risk management first, and growth second. They’re designed to reduce downside exposure during market drops — a key component when building a crash-resilient plan.
- Growth Stock Portfolios: While more volatile, these investments offer the long-term upside necessary to battle inflation and leave a legacy. Diversifying across multiple managers with different strategies adds another layer of resilience.
Liquidity Matters: The Cash Bucket
Perhaps the most overlooked — yet crucial — part of a retirement plan is liquidity. You should always have a cash bucket with 1–3 years’ worth of income needs.
This cushion lets you avoid selling investments at a loss during market downturns. Had our earlier example client listened to this advice, he wouldn’t have needed to worry about stock returns in a bad month — his cash reserve could have funded his lifestyle.
How much should you keep in cash? That depends on your net worth and expenses, but often ranges from $75,000 to $200,000 or more.
Case Study: What Can Go Wrong (and How to Fix It)
Let’s return to the investor mentioned earlier: retired at 62, aggressively invested, no cash bucket, and prematurely took Social Security — despite his advisor’s advice.
What could have been done differently?
- Delay Social Security: By claiming early, he locked in lower lifetime benefits. Had he waited, his younger wife could have received a significantly higher survivor benefit.
- Build the Foundation: Adding annuities or other guaranteed income products would have covered his basic expenses without relying on market performance.
- Create a Cash Reserve: Having 2–3 years of income in liquid accounts would have provided breathing room during downturns.
- Diversify the Portfolio: Rather than putting everything in risky assets, he could have used structured notes, private credit, and tactical portfolios to balance growth with protection.
How to Build a Retirement Plan That Provides Confidence
Knowing how to build a retirement plan that’s ready for anything brings more than just financial security — it brings confidence.
When your income is protected and your portfolio is diversified, you’re free to enjoy life without second-guessing every market dip or headline. You can spend money on travel, gifts, hobbies, or healthcare without fear.
This kind of plan includes:
- Guaranteed income for essentials
- Supplemental investments for steady yield
- Growth assets for inflation and legacy
- Tactical management for risk
- A healthy cash reserve for flexibility
Conclusion: Don’t Wait Until It’s Too Late
Markets will continue to rise and fall — that’s inevitable. What’s optional is how prepared you are. Whether you’re five years from retirement or already there, now is the time to assess your strategy.
Do you have a strong foundation? Do you have enough income not tied to the market? Do you know where your paycheck will come from if the market drops 20% tomorrow?
If not, it’s time to rethink your approach and learn how to build a retirement plan that withstands market crashes. Your future self — and your peace of mind — will thank you.
Also read: How to Protect Your Retirement During Market Volatility
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Topics we will be covering are Retirement and Financial Planning, Investment Selection, Retirement Income Planning, Taxes and Taxation during Retirement, Healthcare, Long Term Care, Legacy and Estate Planning, in addition to important Market and Economic changes impacting Retirement.
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