Every time the headlines start yelling about “the worst day since…” I picture two versions of retired me. One version panics, refreshes the portfolio app, and wonders if I should sell everything and hide under the bed with a jar of peanut butter. The other version sips coffee, nods, and goes for a walk because the plan is already in place. I prefer the coffee-and-walk me. In retirement, I can’t control the markets, but I can control my preparation. Here are the seven steps I use, in plain English, to get ready for the next market downturn and sleep at night without clutching my phone.

1) Build a “sleep-at-night” cash bucket.
The most expensive thing in a downturn is selling good assets just to pay the electric bill. That’s how temporary declines become permanent losses. So I hold a dedicated cash bucket, roughly 18 to 36 months of my baseline withdrawals, which means the essentials only, not the splurges. I keep this in very safe spots, a high-yield savings account, Treasury bills, short CDs, or a conservative short-term bond fund. I refill the bucket during good markets by skimming dividends and trimming winners. If stocks are down, I’m not forced to sell shares. I’m buying time, and time is what turns scary markets back into ordinary math.

2) Lock in an income floor to cover true needs.
When my essentials are funded by predictable income, market swings feel like weather, not a crisis. I make a simple list of non-negotiables, housing, food, utilities, insurance, prescriptions, and I aim to cover 70 to 100 percent of that with dependable sources, Social Security (claimed intentionally, not reflexively), any pension, and, for some folks, a ladder of TIPS or CDs. A low-cost single premium immediate annuity can make sense for a portion of income if longevity risk keeps you up at night. The point is not to maximize returns, it’s to buy peace of mind, so the market portfolio funds “wants,” not “needs.” Once that line is drawn, I’m less tempted to push buttons on the bad days.

3) Right-size risk and diversify on purpose, not by accident.
Risk tolerance is what I think I can handle, risk capacity is what my plan can handle. I start with capacity; how much could the portfolio drop before it jeopardizes my income floor. If a 30 percent decline would force me to sell at bad prices, I’m carrying too much stock. I choose a target mix that acknowledges reality, something like 40/60 or 50/50 can be plenty for many retirees, and then I diversify broadly.

That means low-cost total market funds in the U.S. and internationally, with a touch of value or dividend tilt if that helps me stay calm, and on the bond side, I favor quality, Treasuries and investment-grade, leaning shorter to intermediate maturities to keep interest rate surprises smaller. I avoid concentrated bets and complicated “rescue” products dressed up with glossy brochures and fat fees. Boring is beautiful when you’re buying groceries with the proceeds. Risk is not good these days.

4) Pre-wire flexible spending “guardrails.”
Most retirement plans fail not because markets go down, but because spending doesn’t adjust when they do. I write down rules while I’m calm. If my portfolio falls 10 percent from its high, I trim discretionary spending by 10 to 15 percent, fewer restaurant meals, delay the kitchen backsplash I convinced myself was “urgent,” hold the travel budget steady instead of expanding it. If it drops 20 percent, I pause all big one-time purchases and stick as closely as possible to my essentials.

Then I set a recovery rule, I only restore spending when the portfolio recovers past a specific level or after rebalancing has done its job. This turns scary markets into a temporary belt-tightening exercise rather than a permanent lifestyle change. It also gives me something positive to do, and that helps.

5) I make rebalancing and taxes rules-based, so I don’t improvise under stress.
I pick rebalancing bands ahead of time, usually when an allocation drifts more than five percentage points from target, or about 20 percent of its intended weight, I nudge it back. That way, I’m automatically trimming what got expensive and adding to what got cheap, exactly when my feelings want to do the opposite. In taxable accounts, down markets can be tax opportunity season.

I harvest losses to offset realized gains and up to three thousand dollars of ordinary income, then bank the rest to carry forward. I also revisit my withdrawal order, cash and interest first, then taxable accounts with high cost basis, then traditional IRAs with an eye on tax brackets and RMDs, and Roth assets last for growth if I can afford to wait. Bear markets are often the best time for partial Roth conversions, I’m moving the same number of shares at a lower value, which can mean lower taxes for the same long-term benefit. And if I know I’ll need cash soon, I stop automatic dividend reinvestment in taxable accounts so I’m not paying a commission to myself to buy something I’m about to sell.

6) Fortify liquidity and credit before I need it.
If the market drops and I suddenly need a new water heater, I want choices. I keep high-interest consumer debt cleaned up because nothing compounds against you like a credit card. I also establish a home equity line of credit when times are calm and my credit score is shiny. Not because I plan to use it, but because having it prevents me from selling at a bad moment. On the safe-money side, I like a simple ladder of three- to twelve-month Treasury bills, staggering maturities so something is always rolling over.

That gives me a predictable stream of cash with very little drama. I also check my bank setup, automatic transfers from a money market to checking, overdraft protection, and a small “oh-no” fund for life’s surprises. Liquidity is emotional insurance, it keeps me from turning a temporary market problem into a permanent portfolio problem.

7) Protect the household: paperwork, process, and behavior.
Downturns are when the weak links snap, and not just in the markets. I update beneficiaries, account titling, and my power of attorney and health directives. I keep a one-page “where everything is” sheet for my spouse or trusted person, the institutions, last four digits, how to access, and I store it safely.

Then I write a short Investment Policy Statement, fancy name, simple job, it states my allocation, my rebalancing bands, the guardrails for spending, and the circumstances under which I will and will not make changes. I also set what I call the 48-hour rule, if I feel like panic-selling, I pause for two days and talk to a trusted second set of eyes first. On the digital side, I freeze my credit with the bureaus, use two-factor authentication, and adopt a tiny news diet during turbulence so I’m informed but not marinating in doom. Scammers love chaos, so I rehearse my answer for unsolicited “urgent” calls, “Thanks, I’ll call the number on the back of my card,” then I hang up. It feels good to practice not being a victim.

Now, a few practical touches tie all seven steps together. First, I automate as much as possible. If your cash bucket lives at the same institution as your checking, schedule a monthly transfer so your groceries are funded whether the market is up or down. If my rebalancing bands are in writing, I can glance at a simple tracker and know what to do without a debate. If my income floor is funded, I don’t have to re-think my entire life because a red arrow showed up on TV.

Second, I schedule a quarterly “household finance hour.” I review spending, skim for waste, check progress on any ladders or conversions, and have a short conversation with my spouse about what would change if the portfolio fell by 10 or 20 percent. If the answer is “not much,” I’ve built the right plan. If the answer is “we’d freak out,” I adjust before the market forces the issue. Third, I remember that my future self is counting on present me to be patient. The most reliable way to be patient later is to set the rules now and treat them like a checklist, not a mood.

I also try to be honest about the tradeoffs. A larger cash bucket reduces portfolio risk, but it also reduces expected return. An income annuity can increase peace of mind, but it reduces liquidity. A lower stock allocation can make the ride smoother, but it may mean fewer upgrades to my travel plans. The right answers are personal, not mathematical trophies. I solve for the life I want to live, then I back into the portfolio that supports it. That mindset keeps me from chasing whatever was hot last quarter or buying the financial product of the week because a stranger on the internet swore it was “risk-free.”

Let me share how this looks for me when markets wobble. The news announces a scary day (which is happening with some frequency these days). I glance at my allocation. If equities have fallen enough to push me below my band, I rebalance, carefully, by trimming bonds or directing new cash into stocks. If I’m inside my bands, I do nothing. My cash bucket is still funding my monthly transfer, so my day-to-day life is unchanged. Never panic unneccessarily, right?

My guardrails are already in place, so I make one small cut at the next grocery run and delay a nonessential purchase. I check for any tax-loss harvesting opportunities in taxable accounts and harvest when it meets the rules I wrote down, not because I’m trying to be clever. I resist reading ten more articles that will only make me feel cleverer and poorer. Then I go for that walk. The plan does the worrying, so I don’t have to.

Something else I’ve learned, in retirement, feelings arrive faster than facts. Writing my decisions down ahead of time keeps feelings in their lane. If I ever start to think, “This time is different,” I reach for my Investment Policy Statement and my “where everything is” sheet. The IPS reminds me what we decided when we were calm. The one-pager reminds me that the most important person in this plan is my spouse. If I panic and sell at the bottom, I don’t just hurt my net worth, I transfer stress to my household. That’s the kind of return I refuse to accept.

If you’re reading this and thinking, “I’m behind,” take heart. You don’t have to rebuild your entire financial life by Friday. Start with the cash bucket, even three or six months of baseline withdrawals is a meaningful improvement. Then outline your income floor, see what your essentials actually cost and how much is covered by Social Security and any pension. From there, nudge your allocation toward something you could live with through a big storm.

None of this is about predicting the future. It’s about refusing to be surprised by the past. Markets have always gone up, down, and sideways, sometimes rudely. The retirees who come through in good shape aren’t the ones with the fanciest charts, they’re the ones who set simple rules and keep them when it’s hard.

That’s the real “alpha” in retirement, discipline over drama. My plan isn’t flashy, but it lets me enjoy my mornings, my family, and the life I saved for without staring at ticker symbols. And on the worst days, when the headlines are loud, that plan is the quiet in the room.

Don’t wait until it’s too late, get your financial house in order today!

Happy retirement planning!