Retirement planning is an emotional and financial journey that can be shaken by market fluctuations. Whether you’re already retired or approaching retirement, market volatility can feel threatening. You see your account balances dip, your long-term savings take a hit, and you start to question whether your future is still secure.
But here’s the truth: volatility is inevitable. The good news? It doesn’t have to derail your retirement. Let’s break down what you should—and should not—do when the markets are rough to protect your retirement during market volatility.
Stay Calm: Don’t Panic Sell
One of the most important things you can do during a market downturn is… nothing.
If you’re feeling overwhelmed because of paper losses in your investment accounts, remember: the loss only becomes real when you sell. Panic selling locks in those losses and removes the possibility of future recovery.
Yes, the old advice still holds true—time in the market beats timing the market. Markets recover. Historically, after every downturn, there has been a recovery. And while that doesn’t eliminate the emotional stress of seeing red on your portfolio, it’s a reminder that selling during the dip is often a costly mistake.
In most cases, you don’t do anything. Buy and hold. Sit still.
Understand the Three Market Guarantees
When you invest in the stock market, you must accept three absolute truths:
- The market will go up.
- The market will go down.
- The market will move sideways.
None of these movements should surprise you. They are part of the normal lifecycle of the financial markets. What’s important is how you prepare for and respond to them—not the movement itself.
Look at the Long-Term History
Perspective matters. If you take a step back and look at the stock market through history, you’ll notice a clear upward trajectory over time—despite wars, recessions, political changes, and inflation.
Ryan recalls analyzing the S&P 500 index from the time of John F. Kennedy when it was at 170. By the time Reagan was in office, it had grown to 700. Under Trump, it was around 3,500, and more recently, it’s been in the 5,300 range.
The market doesn’t care who’s president or what the headlines are. Over time, it climbs.
Know Your Retirement Personality: Risk-On, Risk-Off, or Hybrid?
Not all retirement strategies are created equal. The approach you choose should reflect your personal tolerance for risk and your income needs.
Risk-Off: Safety and Predictability
This type of investor relies primarily on guaranteed sources of income: Social Security, pensions, and annuities. Their income is stable and largely unaffected by stock market movements.
Pros:
- Peace of mind
- Consistent income regardless of market performance
Cons:
- You may miss out on potential market gains
- Less flexibility for inflation or unexpected expenses
Risk-On: Riding the Market
Risk-on retirees depend on their market investments to generate income. They accept that the market will go up, down, and sideways—and they’re okay with it.
Pros:
- Greater potential for growth
- Flexibility in how much you withdraw based on performance
Cons:
- Market downturns may reduce available income
- Requires strong emotional discipline
Hybrid: A Balanced Approach
Most people fall somewhere in the middle. The hybrid strategy uses guaranteed income for essential expenses and market-based investments for discretionary spending or future growth.
This approach can also serve as a middle ground when spouses have different risk tolerances—something advisors encounter frequently.
Stress-Test Your Retirement Plan
No matter your risk profile, it’s essential to stress-test your retirement income strategy.
Ask yourself:
- How will my plan perform if the market drops 10%, 20%, 30%, or even 40%?
- Do I have enough guaranteed income to cover my basic living expenses during those downturns?
- What’s my strategy for recovering from a market decline?
Financial professionals can model these scenarios to help you see how your plan holds up under pressure. It’s about removing dependency on the market for essential income, so you can sleep better at night.
Focus on What You Can Control
You can’t control inflation, elections, interest rates, or geopolitical events. But you can control:
- How much risk you’re exposed to
- When you plan to start withdrawing income
- How and when you claim Social Security
- The fees you’re paying on investments
- Whether your plan is flexible enough to adapt
Start by understanding what kind of investor you are. Then build a retirement income plan that reflects your priorities and cushions you from the stress of market volatility.
Nearing Retirement? Here’s What to Do
If you’re 6 to 12 months away from retirement, now is the time to:
- Lock in your income sources
- Reduce your market exposure, especially for the income you’ll need in the early years
- Revisit your budget to understand spending needs
If you’re 5 to 10 years away, your focus should be:
- Maximizing contributions to retirement accounts
- Diversifying your investments
- Developing a written retirement income plan
- Exploring income-generating options like annuities
Planning early gives you more options and allows you to be proactive rather than reactive.
Do You Have a Real Plan—Or Just a Portfolio?
A well-balanced portfolio is not the same as a retirement income plan.
Your plan should answer:
- Where is my income coming from—month by month?
- Will I still be okay if the market drops?
- How will my plan adapt if my spouse passes away?
- Can I afford healthcare and long-term care?
- What happens if inflation rises sharply?
If your current plan doesn’t address these questions, it’s time for a second opinion.
Final Thoughts: How to Protect Your Retirement During Market Volatility
Ultimately, the goal is to retire with confidence. That means setting up a retirement income strategy that allows you to live your life—regardless of what the market does next.
Don’t wait for the next crash to take action. Begin now by evaluating your risk, understanding your income sources, and building a flexible plan that works through all market conditions.
If you’re not sure where to start, consider talking with a Certified Financial Planner who can help you build and stress-test your plan.
Also read: When Do You Actually Need a Trust — and When Don’t You?
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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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