How to Adjust Your Retirement Strategy When the Market Changes
Investment Strategies | by Jules Buxbaum | Thursday, March 06, 2025
Retirement strategy adjustment is essential for individuals who want to maintain financial stability when markets are uncertain. Whether you're just beginning to save or already in retirement, understanding how to adapt your plan can make all the difference in safeguarding your nest egg.
Volatility is a normal part of investing, and it can feel intimidating if you’re not prepared. To prepare, you might need to rebalance your portfolio and review whether changes in market conditions should alter your investing or withdrawal approach. For further reading on creating a balanced plan, see our advice on diversify your retirement portfolio for long-term success.
1. Know Your Personal Risk Tolerance
A key step in adapting to changing markets is clarifying how much risk you can handle. Some people can ride out major market dips with minimal stress, while others lose sleep when their portfolio declines by even a few percentage points.
To figure out your comfort zone, identify your short-term cash needs versus longer-term goals. The bigger your buffer in stable assets, the more flexibility you have to hold risky investments. Market downturns can happen any time, so the right mix of stocks, bonds, and alternative assets helps keep stress in check.
Historically, equities have delivered stronger returns than other asset classes over the long run. Academic research into the Equity Risk Premium (ERP) notes that stocks often outperform fixed-income investments, and there’s no fundamental reason to expect this trend to vanish. Yet no single formula works for everyone, because risk tolerance relates not only to age but also to future income and existing wealth.
2. Rethink Traditional Glide Paths
Conventional wisdom suggests moving from stocks to bonds as you get older, but there’s little historical evidence that this always makes sense. The real driver is future earnings relative to current wealth, not just age.
For example, a 60-year-old with strong future earnings capacity may sustain more equity exposure than someone half that age but with little expected income. If you want a fresh perspective, check out how inflation risk in retirement savings can affect time horizons for different investors.
Glide path strategies can be too simple because they reduce risk mechanically as time passes. A more tailored approach accounts for your likelihood of earning money later in life, your existing net worth, and how you handle market volatility. If you have high earning capacity, you could handle more swing in your portfolio. If your potential to earn is limited, you might not recover from a severe loss as quickly.
3. Adjust Your Asset Allocation as Markets Shift
Periodic rebalancing helps keep your portfolio aligned with your chosen strategy. Bear markets or economic downturns can throw your allocation off, but that can also create opportunities to buy certain assets at lower prices.
In 2022, for instance, the S&P 500 Index fell roughly 18%, while a 60/40 stocks-to-bonds mix declined by about 16% (according to multiple industry analyses). Investors who systematically rebalanced at lower prices were often rewarded when equity markets recovered.
Along with standard rebalancing, consider whether to retool your equity-to-bond ratio in response to large market changes. If you’re stressed by sudden losses, it might be time to shift to more stable instruments like short-term bonds. Conversely, if a downturn leaves your equity stake too low relative to your long-term goals, you may want to buy more stocks.
4. Revise Your Withdrawal Strategy With Care
When you’re retired or getting close to it, market changes can complicate withdrawals. Taking large distributions when your funds dip can harm your long-term balance, due to what is known as sequence of returns risk.
If the market is down, a prudent move is to minimize distributions for a period or to tap your cash reserves until your portfolio recovers. You can learn more about this in our guide on planning your retirement withdrawals.
For added security, you might opt for a “bucket strategy.” You hold a few years’ worth of living expenses in conservative accounts and invest the rest in growth-oriented assets. This structure helps you avoid selling stocks at depressed prices when markets stumble.
5. Leverage Specialized Planning Tools for Your Unique Situation
Because each person’s future income and savings vary, a one-size-fits-all approach rarely suffices. Having data-driven tools can clarify how a small change in retirement age, risk exposure, or savings rate impacts your probability of hitting financial goals.
Tools like Two Pi’s Financial Planning Engine show real-time projections of how your money might last. By syncing your financial details and adjusting factors like risk tolerance or desired retirement age, you get a personalized forecast that updates as markets move.
This interactive approach underscores why age alone shouldn’t dictate your allocation. Instead, let your unique mix of assets, earning power, and spending preferences guide your investment decisions.
6. Consider Future Earnings, Not Just Age
Future earnings can act like a natural stabilizer. If you still collect a salary or own a business, you might offset portfolio losses without liquidating investments at unfavorable prices.
The real question is how stable that future income might be. If you have consistent work or a business that’s resilient, you can afford more market risk. On the flip side, if your earnings are uncertain, you may want to hold a bigger cash buffer.
Given these factors, an individual aged 45 with minimal job security might hold less stock exposure than a 65-year-old who expects ongoing income for years. Any approach that relies merely on birthdates misses the point: your capacity to absorb losses and a timeline for recovery matter more than your birthday.
7. Keep an Eye on Economic Shifts and Policy Changes
Wider economic conditions, such as rising inflation or increased interest rates, can affect your portfolio’s performance. For instance, if inflation climbs quickly, real returns on fixed-income assets might lag behind rising costs.
According to a survey by the Transamerica Center for Retirement Studies, inflation led 40% of older Americans to push back their retirement dates. If you're weighing when to retire, read our discussion on finding the right retirement age based on your lifestyle.
Legislative changes can also alter your plan. New retirement rules, restructured Social Security benefits, or updated tax brackets may shift your best moves. Keeping updated on these developments helps you make timely portfolio adjustments or revise your spending plans.
8. Guard Against Emotional Reactions
When the market experiences large swings, the urge to act impulsively can be strong. A study by J.P. Morgan Asset Management shows that missing the 10 best market days over a 20-year period can reduce annualized returns by more than 3 percentage points.
Panic selling can lock in losses, while waiting on the sidelines could cause you to miss a quick rebound. To avoid knee-jerk moves, consider automating deposits into your retirement accounts using dollar-cost averaging. This method buys more shares when prices drop, laying a foundation for potential long-term gains.
Another helpful technique is to run forecast scenarios with a financial advisor or robust planning software. These simulations show how big market dips might affect your timeline or spending, and they can reveal ways to stay on track without drastic portfolio overhauls.
9. Factor in Other Protection Methods
Your retirement plan can also benefit from risk mitigation tools. Insurance products like annuities or long-term care coverage can limit exposure to various financial shocks, but be mindful of fees and contract terms.
If you’re interested in guaranteed income, weigh the pros and cons of annuities. They can lock in lifelong payouts, which is valuable if you expect to live longer or worry about outlasting your assets. However, annuities aren’t always flexible regarding early withdrawals or changing income needs.
Similarly, a robust emergency fund helps you avoid selling investments at the worst time. Keeping three to six months’ worth of expenses in accessible accounts can protect you during emergencies or in a market nosedive.
10. Focus on Long-Term Results, Even During Turbulence
Large swings in stock prices or economic news cycles can dominate headlines, but short-term events shouldn’t entirely steer your retirement plan. Over the decades, markets have repeatedly recovered from crises like the 2008 recession and the early 2020 COVID-19 shock.
Of course, staying calm doesn’t mean ignoring red flags. If your portfolio no longer reflects your objectives or stress level, tweak it thoughtfully. Just avoid abrupt moves that undercut your broader goals.
Adjusting course when the market changes is about regular check-ins and strategic updates, not constant guessing of market tops and bottoms. Over time, disciplined decisions generally outweigh spur-of-the-moment trades.
Bottom Line
Adapting your retirement strategy to shifting markets revolves around customizing risk exposure, diversifying your holdings, and recalibrating withdrawals. Remember that your future earnings capacity and personal tolerance for volatility may matter more than your age alone.
If you’re refining your plan right now, watch out for common pitfalls that can derail long-term security. Keeping a balanced mindset can help you maintain momentum while giving your portfolio room to benefit from eventual market upswings.
Staying flexible doesn’t require constant overhauls. Instead, focus on consistent portfolio checks, modest tweaks, and a clear understanding of how market shifts interact with your earning potential and financial goals. Over the long haul, that thoughtful approach can help you retire with the stability and freedom you envision.
References
1. Morgan Stanley. (n.d.). “Protect Retirement Investments in a Volatile Stock Market.” Available at: https://www.morganstanley.com/articles/protect-retirement-investments-volatile-stock-market(https://www.morganstanley.com/articles/protect-retirement-investments-volatile-stock-market)
2. T. Rowe Price. (2023). “2025 Retirement Market Outlook.” Available at: https://www.troweprice.com/retirement-plan-services/en/insights/retirement-market-outlook.html(https://www.troweprice.com/retirement-plan-services/en/insights/retirement-market-outlook.html)
3. Transamerica Center for Retirement Studies. (2023). “Survey Results on Retirement Delays.” Available at: https://transamericacenter.org(https://transamericacenter.org)
