Stress-Testing Your Retirement Portfolio Against Real-World Market Volatility

As Principal and Senior Wealth Advisor at Compound, Dimitry Farberov has 18+ years of experience helping tech employees, founders, and retirees tackle major life transitions. He’s helped create custom solutions for clients looking to make informed decisions about their estate planning.

Retirement isn’t set in stone. 

Maybe you’ve seen your portfolio grow dramatically over the past decade, with as much as 15% annual returns (way more than historical averages, which are closer to 10%). But you can’t plan for that to be the standard forever. 

In 2025, the market’s performance has been misleading. It’s made people expect returns on their retirement that just won’t happen. That’s why you have to test your portfolio against flat market periods. 

What if those 15% returns become 5% returns over the next decade? What if we have a period of 10 years where the US markets are flat? How would you feel?

The market’s performance changes. Your planning has to take that into account. 

Below, I’ll share how to take advantage of the spoils while positioning your portfolio for safety and security. It’s all about factoring in market downturns, inflation, and any surprise life events. 

The Case Against Planning (Only) for a Bull Market

When you protect your portfolio from market changes, you can create a more resilient retirement strategy that’ll get through any volatile period.

Potential risk factors of planning for a bull market:

• You don’t factor in changes in returns over time (or stress-test for them) 
• Your portfolio is overweighted in US tech stocks (which is driving 2025 outperformance)

If markets go down 30-40% in your early retirement years, your withdrawal strategy could take a hard hit. No one wants that.

Keep in mind: 10 years ago, retirement looked different. Interest rates were under 2%. In 2025, they're close to 5%. And bonds and CDs offer “risk-free” 5% returns, which wasn’t even an option before.

Your expected outcome needs to adjust for how the rate of returns will change over the next 20+ years. Our advisory team at Compound Planning accounts for these ebbs and flows using historical data and cash flow analysis.  

So the question today: What do “safe” returns look like? It’s time to recalibrate, and decide if you're taking unnecessary risks because you’re chasing higher returns.

Keep Asking “What If?” 

Being optimistic is important; so is being pragmatic. What if X, Y, Z goes wrong? 

Thoughtful planning means you need to prepare for practical (and historically realistic) scenarios where markets underperform for longer periods of time. Your retirement strategy should work whether you face flat returns (like from 2000-2010) or strong market performance (like from 2010-2020). 

During downturns, rash decisions are never right. The most prepared retirees don’t phone their advisor during a market plummet, because they’ve already designed their retirement portfolio to sustain it in a way that still makes the end result satisfactory. Stress-test your portfolio to see not just how much you’ll have, but how you’ll feel in each scenario.

Imagine your portfolio’s declining fast and you’re withdrawing money on the regular. Are you prepared mentally for that feeling of losing money in your portfolio as you’re actively withdrawing from it, too? It’s a huge pressure. 

Building a Portfolio That Weathers All Storms 

Step 1: Evaluate your portfolio with the future in mind‍

Look at your retirement projections right now, and do a quick analysis with your advisor. You should look at growth projections, future cash flow, and potential withdrawal rates.

If you don’t already work with an advisor, a Compound Planning advisor can help — just create a dashboard, link your financial accounts, and request to speak with an advisor to get started.

Try modeling what your money would look like in 2000-2010 (when the S&P 500 returned essentially 0%) and 1970-1982 (when there was flat, yet volatile performance).

If your retirement plan relies on 10%+ annual returns, see what happens when you use 2-3% real returns instead. It’s a reality check.

Step 2: See how market downturns affect your withdrawal strategy ‍

First, model what happens to your portfolio if you start retirement withdrawals during a major market decline. Test different annual withdrawal rates (3%, 4%, 5%) for market performance similar to 2000, 2008, or 1973 — these were periods where the US markets were sharply lower. How long does your portfolio last in these scenarios?

Be honest, too, about how much your investments are concentrated in certain geographies and sectors. How can we construct a portfolio for you that's resilient, what can we implement to weather different realities? 

If only one sector or geographic location, like the US in technology, has done exceptionally well, it might make you feel like you’re missing out on a certain return. But it's typically better to be less geographically and sector-concentrated over the long-term.

Step 3: Understand your emotional reaction to market stress‍

Some people say they want to keep their money in cash until the market “settles down.” But if they wait, then they’re too late — the market may be 50% or 100% higher than it was then. Others decide to sell because of what a pundit says on TV.  

Don’t let your emotions push you into making quick decisions. Instead, determine the level of loss that you’d feel comfortable with and what would keep you up at night.

An exercise: Write down how you felt during 2014 coming out of the great financial crisis (or other market downturns you've gone through). Now, imagine that same feeling hitting you when you're retired with a predetermined withdrawal rate for daily life. 

Everyone has a personal "panic point" — determine what the percentage drop is that makes you want to sell everything (maybe it’s around 20-30% losses). 

Build your portfolio with that in mind. 

Step 4: Design a portfolio that considers your concerns and the market‍

You can structure your portfolio to prevent an emotional breaking point, even though it may mean accepting possibly lower returns. 

Think of a three-bucket approach, where you allocate some of your money for spending, some for security, and some for growth. Based on the risk you’re comfortable with, you can earmark certain funds. So, instead of thinking on a macro level, you’re thinking about your portfolio on a micro level. 

For example, a well-constructed portfolio might show:

• The portion you’ve allocated for growth is up 12%. 
• The portion that’s there to buffer for volatility has earned 5% when the markets were down. 
• The portion that’s built for income is generating $4,000 per month, and that’s satisfying your monthly spending needs.

Together, these are positive signals that you’re planning for retirement strategically.

Getting Confident About Your Retirement Planning

Once you understand your emotional threshold, a market dip of 40% might not phase you anymore. You've already prepared yourself for that scenario, and know that you're still on track for retirement. 

Since you've already thought through different market conditions and built in some cushion, you don't need to change your strategy every time the news gets dramatic. You can stick with your plan, which is designed to work in all seasons. 

You'll also sleep better knowing you've figured out safe withdrawal rates for different scenarios, and won't be scrambling to cut expenses later on. That’s the impact of a diversified approach that’s realistic and future-oriented. 

Don’t chase returns. Focus on principle protection and security — and living your life. My job as an advisor is to not only help you maximize retirement but to maximize your life enjoyment.

If you’re looking forward to a comfortable retirement, get in touch with a Compound Planning advisor who can help you build the safest portfolio for your future.