Retirement Savers Shift Strategies Amid Trump’s Trade Turmoil

The first quarter of 2025 has revealed a seismic shift in how retirement savers are managing their portfolios amid the stock market volatility triggered by President Trump’s aggressive tariff policies. With the S&P 500 plunging 17.6% from its February high by April 7, investors are fleeing equities for perceived safer havens like bonds, target-date funds, and alternative assets. Here’s a breakdown of where the money is moving—and why.

The Defensive Shift in Retirement Portfolios

Retirement savers are reacting to market turbulence with a clear strategy: reduce equity exposure and prioritize stability. Data from Alight Solutions reveals that 0.77% of 401(k) balances were traded in Q1 2025—the highest level since the 2020 crash. Participants are moving aggressively into fixed-income assets, with target-date funds (TDFs), large-cap equities, and small-cap equities accounting for most of the trading volume.

This defensive stance is driven by fear. As the S&P 500 tumbled 10.7% in three days following Trump’s April 2 tariff announcement, investors locked in losses by selling equities—a behavior experts warn could backfire. “Participants are ‘selling low and buying high,’ which undermines long-term gains,” said Rob Austin of Alight Solutions.

Why Target-Date Funds Are the New Safe Haven

Target-date funds, which automatically rebalance to reduce risk as retirement nears, are seeing heightened demand. Over 90% of retirement plans use TDFs as default options, and their inclusion of alternative assets like real estate and commodities is proving advantageous. J.P. Morgan research shows that portfolios with direct real estate exposure delivered higher returns with 20% less volatility than traditional equity-heavy allocations.

The shift isn’t just about safety—it’s about inflation protection. With tariffs fueling inflation fears (the 10-year Treasury yield hit 4.40%), TDFs’ diversified holdings in fixed income and real assets are buffering against price spikes.

The Auto-Rebalancing Gap

Despite the benefits of rebalancing, most savers aren’t using the tools available. While 70% of plans offer auto-rebalancing, only 10% of participants use it. This gap is risky: a portfolio initially split 60/40 (stocks/bonds) can drift to 80/20 due to equity outperformance, amplifying volatility.

Experts urge plan sponsors to promote auto-rebalancing. “Derisking manually requires discipline most savers lack,” said Mercer Advisors’ Eric Freedman. “Auto-features are critical for maintaining intended risk exposure.”

Generational Divides in Risk Tolerance

The shift isn’t uniform across age groups. Baby Boomers (55–62) are the most reactive, with many fearing they’ll need to delay retirement. Over 80% of this group reported increased trading activity, often moving into ultra-safe Treasury bonds—a move that could hurt long-term growth.

Meanwhile, younger generations (Gen Z/Millennials) are growing skeptical of institutional retirement tools. A March survey by the Department of Labor found 60% of these savers distrust traditional 401(k) plans, preferring low-cost index funds or crypto—despite the latter’s volatility.

The Hybrid Income Solution: A Long-Term Play

Plan sponsors are responding by blending TDFs with guaranteed income products like annuities. These hybrid defaults aim to address longevity risk and market swings, but success hinges on transparency. “Participants need clear cost breakdowns and flexibility,” said Rob Haworth of U.S. Bank.

The Regulatory Wildcard: ESG and Bitcoin Under Scrutiny

Not all asset shifts are welcome. Specialty investments like ESG funds or Bitcoin face ERISA compliance challenges. A Texas court ruling in April 2025 barred American Airlines from offering ESG funds in retirement plans, citing fiduciary duty concerns. Plan sponsors must now vet these options rigorously—a hurdle for younger generations drawn to ESG and crypto.

Conclusion: Stability Over Growth—For Now

The 2025 retirement landscape is defined by caution. With Trump’s tariffs driving a $4 trillion market loss and GDP projected to contract 2.8% in Q1, savers are prioritizing preservation over gains. Key takeaways:
- Equity exposure is declining: Fixed income and TDFs are absorbing the bulk of new allocations.
- Auto-rebalancing is underused: Only 10% of participants use it, despite its proven effectiveness.
- Generational divides matter: Boomers are doubling down on safety, while younger groups seek low-cost alternatives.

Investors should heed this advice: Stay disciplined. Avoid panic trades, leverage auto-rebalancing tools, and consider TDFs with real asset allocations. As the S&P 500’s 15.6% drop since Trump’s 2024 election win shows, volatility isn’t going away—but neither are the tools to navigate it.

The path to retirement security in 2025 isn’t about timing the market—it’s about sticking to a plan.