It’s no secret that market volatility has returned with a vengeance. For retirees and pre-retirees, the stakes are especially high, as sudden downturns can threaten stability and long-term plans. In uncertain times, it’s easy to fall into the trap of thinking that doing something is better than sitting still. But without a clear strategy, emotional decision-making can take a serious toll on your long-term success. Ultimately, how you react to market volatility often has a bigger impact on your financial outcome than the volatility itself.
Periods of heightened volatility trigger a deep, evolutionary response: survival mode. Our brains start looking for patterns, anticipating threats, and reacting quickly, which is great if you’re avoiding predators, not so great if you’re managing a retirement portfolio. Emotional decisions made during periods of heightened market stress often lead to costly mistakes. Panic selling, deviating from a long-term strategy, or chasing temporary safety can significantly diminish your portfolio’s potential value.
But it doesn’t have to be all doom and gloom. While we can’t predict the market, we can control one thing that makes all the difference: our reaction to it. Armed with the right mindset and a solid financial plan, you’ll be well-equipped to weather any financial storm.
The RAIN Model: A Mindful Approach to Market Stress
Financial stress often clouds our judgment, leading to impulsive moves. Before making any financial move, pause and take a breath. The RAIN model, outlined below, offers a framework to help process emotions constructively. It can serve as a helpful mindfulness tool to separate feelings from action.
- Recognize your emotional state. Take a moment to name what you’re experiencing and label your emotions. For example, maybe you’re feeling fear as you watch the markets drop or frustration at the uncertainty.
- Allow the feeling without reacting. It’s entirely natural to feel unsettled by a significant downturn. Acknowledge the discomfort instead of immediately trying to fix it through action. You’re not weak for being worried. You’re human.
- Investigate where the feeling comes from. Is it the news? A dip in your statement? A deeper fear of loss? Think about your internal narrative. Are you catastrophizing the situation? Ask yourself, “Am I assuming the worst-case scenario without all the facts?” This step can help you untangle emotional responses from logical thought.
- Non-identify with the emotion. The fear you feel is real, but it doesn’t define you, nor does it dictate your abilities as an investor. You can feel anxious while still making rational decisions.
To illustrate the RAIN Model in action, imagine how you feel when your portfolio value drops by 10%. By applying RAIN, you recognize the fear, acknowledge that it’s okay to feel unsettled, examine the source of those emotions, and remind yourself that a sound financial plan supports your portfolio. As you think through the steps, you are more likely to feel grounded, meaning you’re less likely to panic-sell, saving you from potential long-term losses.
It Might Be Time to Rethink Your Retirement Income Strategy
Market volatility often exposes weaknesses in your retirement income strategy. Not every retiree is built for a total return strategy, where withdrawals are funded through portfolio growth. And that’s okay. If you find yourself unable to sleep during a downturn, it might be time to consider other approaches. Understanding your preferences ensures the “price of admission” for an approach (such as enduring short-term market losses) feels “worth it.”
That’s where the RISA® Profile comes in. It’s a tool designed to help you uncover your retirement income preferences, such as whether you lean toward safety-first options like annuities and bond ladders, or whether you prefer to stay market-exposed with flexibility. Knowing your style allows you to align your income strategy accordingly. If you need contractual income to weather the emotional storms of investing, it’s better to know now and adjust than continue forcing a square peg into a round hole.
Successful investing is about staying disciplined when it matters most. The best time to create rules is when you’re thinking clearly, not when fear is in the driver’s seat. A financial plan provides that structure. It turns panic into process, fear into focus.
And remember: this too shall pass. But how you navigate it will shape your future more than any one market event.
Want to learn more? Listen to Ep. 173 of the Retire With Style Podcast.
