Building Resilience in Retirement Investing

Market downturns are inevitable. But in retirement investing, each pullback can feel like a behavioral stress test. 

Principal Asset Management^® research finds that a 10% drawdown in portfolios leads many near-retirees to abandon their investment plans — precisely when balances are largest and the window to recover is shortest.

While abandonment risk persists, investors are showing greater portfolio discipline. Research from Principal Asset Management also finds that investors have shown greater resilience across recent shocks — from COVID-19 to the 2022 rate spike to the 2025 “Liberation Day” selloff.

“Risk tolerances have gone up, and abandonment risk has gone down,” says Mike Reidy, Client Portfolio Manager at Principal Asset Management. “But there’s still work to do to mitigate portfolio abandonment.”

While investor awareness may be improving, many retirement strategies still overlook human behavior. Conventional plan metrics can fail to ask the question: Will the portfolio keep participants invested under market stress?

“Expense ratios matter. Performance matters. But if participants abandon at the wrong time, those metrics become irrelevant,” Reidy says. “Outcomes depend on whether portfolios are designed for real-world behavior — and that requires a multifaceted approach.”

Mitigating portfolio abandonment is a design issue — and the work starts with the plan architecture.

Plans that offer sprawling investment lineups may look impressive on the surface, but in practice can cloud decision-making. “The biggest misnomer is that more choice is a good thing,” Reidy says. “More options can become a stressful endeavor and can overwhelm participants.” 

Slimmed-down lineups and default features — auto-enrollment, auto-escalation, and periodic auto-re-enrollment — can set a steady course and minimize abandonment risk when volatility spikes. Behavioral nudges like in-app prompts and clear progress signals can help raise awareness, sustain contribution habits and deepen ownership.

Principal Asset Management target-date funds apply strategies that integrate behavioral considerations, aiming to keep investors anchored as risk is adjusted over time. Target-date funds incorporate behavioral insight by maintaining higher equity exposure early in the accumulation phase, then accelerating the de-risking cadence around ages 50-65 — the time when participants can be most sensitive to drawdowns. 

Accounting for abandonment risk, Principal Asset Management designs a glide path that is steeper than peers. Their target-date portfolios take a more aggressive approach for younger investors but become moderately conservative as participants near retirement age.

“We’re looking at participant behavior almost in real time,” Reidy says. “So, in periods of volatility, we can be proactive — encouraging participants to stay the course and helping them avoid decisions that could derail long-term retirement outcomes.”

Engineering portfolios for retirement today means designing for volatility — and for participant behavior.

Successful retirement portfolios are built to anticipate stress and sustain participation through features that keep investors engaged. As longer lifespans and persistent market uncertainty shift the focus from returns to durability, Principal Asset Management constructs portfolios — from lineup to glide path to income — to help individuals stay invested.

Even the most sophisticated plan only succeeds if it's built to deliver through every cycle.