Retirement planning is a crucial aspect of one's life, and in today's uncertain economic landscape, it becomes even more essential. With key economic issues such as trade wars, inflation, and deportation policies having a significant impact on retirees and those preparing for retirement, it is vital to understand the implications and make informed decisions. In this article, we will explore the various aspects of retirement planning and how to navigate through the volatile market.

Uncertainty and Investor Sentiment in 2025

According to Charles Schwab chief investment strategist Liz Ann Sonders, uncertainty is likely to dominate investor sentiment in 2025. On a recent episode of Decoding Retirement, Sonders noted that investors need to get reacclimated to President-elect Donald Trump's more off-the-cuff approach to articulating economic and trade policies. She emphasized that this is a uniquely high amount of uncertainty, not just due to our knowledge of Trump in the first administration but also because of how policy got affected, especially on trade in the 2018 period.Sonders highlighted key areas of policy uncertainty, starting with widespread misunderstandings about tariffs. Headlines often simplify Trump's proposals as "tariffs on China," which misleads the public. The exporter doesn't pay the tariff; it is the US company importing the goods that pays, and this cost often gets passed on to consumers.Read more: How do tariffs work, and who really pays them?Trump's mass deportation plans add further complexity. Such measures, often enacted through executive orders, could increase inflationary pressures while dampening economic growth, especially when combined with tariffs. This has led to reemerging concerns over "stagflation," a term that originated in the 1970s but is used more broadly today to describe times of low economic growth combined with high inflation."It's hard to argue against them being inflationary and suppressing growth," Sonders said. "That's why you're seeing a lot more reference to the term of stagflation because of the potential we see [for] lower growth and higher inflation. Maybe the ultimate end is worth it, but that's the near-term implication that we're facing."The Trump administration's thinking is that these policies would bring about short-lived pain necessary for long-term gain. But Sonders is skeptical. "We've seen this story before - like with the Smoot-Hawley Tariff Act of 1930," she said. "I don't think [tariffs are] well understood, but it's what we likely have to live with. … It's a tough environment to try to plan."

Portfolio Adjustments in a Volatile Climate

When asked how retirees should adjust their portfolios in such a volatile climate, Sonders advised against making changes based solely on election-related or policy-related speculation. She noted that doing so would involve gaming what's going to happen and then what the reaction on the part of markets would be. Trying to predict such outcomes is often a "fool's errand," she added. "I think that's fraught with peril."Ultimately, those planning for retirement should "go back to the basics." This becomes more important as you approach retirement and have less time to make up for any mistakes. In many cases, retirees have a need for income generation as well as capital preservation."I think one of the best things for investors to try to do all along the path to retirement is try to figure out - before you figure it out the hard way - whether there is a wide or narrow gap between your financial risk tolerance and your emotional risk tolerance," she said.Financial risk tolerance refers to the objective factors that can be measured on paper, such as your need for income and your ability to withstand financial fluctuations. Emotional risk tolerance, on the other hand, comes into play during tumultuous times, such as when you face a bear market for the first time and react emotionally, perhaps panicking and selling at the worst time."That means your emotional risk tolerance and your financial risk tolerance are completely disconnected," she said. And as you approach retirement, it becomes increasingly important to assess what these tolerances are.Each Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service.Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more.Read the latest financial and business news from Yahoo Finance.