If there’s one group likely to be experiencing the most consternation over inflation and economic uncertainty, it’s those who have just retired or are about to. To make it through this period with their sanity intact, they should focus on what they can control.
People who have just retired or are about to are particularly vulnerable to sequence-of-returns risk, which means that a bad market shows up early in your retirement. Not only does that early retirement sell-off feel bad,
it actually is bad because it imperils your portfolio’s ability to last throughout your retirement years. In Morningstar’s 2025 retirement spending research, we found that the people most likely to run out of money in retirement were the ones whose portfolios lost value in the first five years of their retirements.
Retirees who are pulling cash flows from their portfolios can address that risk by adjusting their spending down to ensure that more of their portfolios are in place to recover when the market eventually does. And those adjustments don’t need to be radical to make an impact. In our retirement income research, we found that even small tweaks like forgoing an inflation adjustment following a bear market help ensure that spending lasts over a whole 30-year period and can lead to more lifetime income than a strategy that ignores market movements.
If you haven’t yet retired, assess your planned in-retirement spending and identify where you would be willing to make cutbacks. Turbocharge savings if you can afford to do so. Catch-up contributions are available to all retirement savers over age 50. And if you’re between 60 and 63, you can make a “super-catch-up” contribution to your company retirement plan, for a total of $35,750 in 2026. High-income heavy savers may also be able to take advantage of after-tax 401(k) contributions, which enable them to stash even greater amounts in their company retirement plans.
In a turbulent market environment in which equities have declined, it’s best to pull any portfolio cash flows from safer assets and leave your stock positions undisturbed. That’s the general logic behind the Bucket approach to portfolio construction. In good years for the stock market, like 2023-25, you’d be harvesting appreciated equity assets to supply your income needs. In bad ones, like 2022, you’re not touching stocks but instead sourcing cash flows from high-quality bonds, cash, or a combination of the two.
If your portfolio is riskier than it should be, it’s not too late to shift into a more situation-appropriate asset allocation.
Social Security is a secure, inflation-protected source of income, much like a paycheck. But the lifetime benefits of delaying Social Security are hard to ignore: a higher income stream that also happens to be fully inflation-protected and will last as long as you do. Delayed filing can be particularly impactful if you’re the higher earner in your family and you have a younger spouse who will receive that higher benefit for their lifetime.
In our retirement income research, we found that delaying filing up until age 70 did enlarge lifetime income, but the benefits are greatest if you have some other source of funds to draw from until your benefits start. And the benefits are also obviously more valuable for people with above-average life expectancies, in that they stand to receive those higher streams of inflation-protected income for a longer period of time.
Inflation is a key risk for retiree portfolios because the income from your safe investments is going to buy you less and less as you age. Moreover, retirees tend to spend more on healthcare, where prices have historically increased faster than the general inflation rate.
Many retirees focus on nominal bonds and underrate the value of inflation-protected bonds as a component of their retirement plans. You can address that by adding an inflation-protected bond fund to your portfolio; most of the better target-date series allocate roughly one-fourth of their bond portfolios to inflation-protected bonds. Alternatively, you could build a laddered portfolio of Treasury Inflation-Protected Securities that will mature and supply you with living expenses throughout your retirement.
The early retirement years are typically an excellent time to consider strategies like converting traditional IRA balances to Roth or accelerating withdrawals on traditional IRAs and 401(k)s. Without income from work and because you won’t be subject to required minimum distributions until you’re 73, your income, and in turn the taxes you’ll owe on those conversions and withdrawals, will be lower.
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This article was provided to The Associated Press by Morningstar. For more retirement content, go to https://www.morningstar.com/retirement.
Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast. Subscribe to her free newsletter, Improving Your Finances.
Related Links:
Your Retirement Countdown, With Christine Benz
https://www.morningstar.com/retirement/your-retirement-countdown-with-christine-benz
5 Things You Need to Know About RMDs This Year
https://www.morningstar.com/retirement/5-things-you-need-know-about-rmds-this-year
Retirees Don’t Need to Fear a Lost Decade. They Need a Plan
https://www.morningstar.com/retirement/retirees-dont-need-fear-lost-decade-they-need-plan
