Take these steps to keep your retirement plans on track.

EDITOR’S NOTE: This article was originally published in the September 2011 issue of Kiplinger’s Retirement Report. To subscribe, click here.

Many older investors are spending their summer stewing over the government’s budget dust-up and the stock market’s gyrations. But even as chaos rules Washington and Wall Street, investors who keep a cool head have opportunities to review spending plans and portfolio risk — and make the tweaks needed to keep retirement plans on track.

If you’re stumbling weak-kneed through August, you’re not alone. It has been a tumultuous month: an unprecedented downgrade of the U.S. government’s long-term credit rating, more talk of a double-dip recession and the ongoing European debt crisis. In the wake of all this, markets went on a wild ride, posting some of the steepest one-day declines since late 2008.

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Many investors are running for cover. As stocks plunged on Thursday, August 18, the ten-year Treasury yield dropped to historic lows of under 2%. (Bond yields and prices move in opposite directions.)

Even long-term 401(k) investors flinched. On Monday, August 8, for example, as the Dow Jones industrial average was plummeting 5.5%, New York Life Retirement Plan Services received the fourth-highest call volume in its 16-year history, says Deanna Garen, the 401(k) plan provider’s managing director of strategic marketing. The firm was hearing from a lot of very scared and worried people asking what they should be doing with their investments, Garen says.

You’ve probably guessed the first thing that financial advisers are saying to such people: Don’t panic. Sit tight. Stay the course.

For those who are in or near retirement, that’s easier said than done. And in fact, there are small, rational steps older investors can take now to address issues raised by the market’s summer swings and insulate their portfolios from future upheaval.

First, consider income versus expenses. Government-spending cuts could have a major impact on seniors. In the initial phase of the budget deal, spending caps generate nearly $1 trillion in deficit reduction, and there are no changes to Medicare or Social Security. But in the second phase, where a 12-member Congressional committee will look to identify an additional $1.5 trillion in deficit reduction, significant cuts to such programs — and tax hikes — are possible.

While you can’t control government spending, you can control your own budget. If you save more and cut spending, any changes that reduce your income and benefits will have less of an impact, says Stuart Ritter, vice-president of T. Rowe Price Investment Services.

Fine-Tune Portfolio Allocations and Holdings

People in retirement should consider stashing about five years’ worth of spending money in short-term bond funds, certificates of deposit and other safe holdings, advisers say. Mentally matching conservative assets with annual expenses in this way can give you the confidence to stick with stock investments through volatile times, since you won’t need stock-market holdings for at least five years.

While those stock holdings may be giving you whiplash, this is not the time to dump them. Small investors’ attempts to time the market rarely bear fruit. Consider 401(k) plan participants who dumped stocks between October 2008 and March 2009 and stayed out of equities through June of this year. Those investors saw their account balances grow just 2% on average over that period, according to Fidelity Investments, versus an average 50% increase for those who stuck with stocks.