If there’s one group feeling the pinch of inflation and economic uncertainty more than most, it’s people who have recently retired or are just about to. Financial experts say the best approach during rocky times is to zero in on the things within your control.
Those entering retirement face what’s known as sequence-of-returns risk — the danger that a market downturn hits right at the start of your retirement years. That early drop isn’t just uncomfortable; it can genuinely threaten how long your savings will last. Research from Morningstar’s 2025 retirement spending study found that retirees most likely to exhaust their savings were those whose portfolios lost value during the first five years after they stopped working.
For retirees drawing money from their portfolios, one way to address this risk is to reduce spending temporarily, keeping more of your money invested so it can recover when markets rebound. And these adjustments don’t have to be dramatic. Morningstar’s retirement income research found that even modest changes — like skipping an inflation-based spending increase after a market downturn — can help stretch your money across a full 30-year retirement and may actually result in more lifetime income compared to ignoring market conditions altogether.
If you haven’t retired yet, now is a good time to look at your expected retirement expenses and figure out where you could cut back if needed. If your budget allows, consider boosting your savings. Workers over age 50 are eligible for catch-up contributions to their retirement accounts. Those between ages 60 and 63 can make what’s called a “super-catch-up” contribution to a workplace retirement plan — up to $35,750 in 2026. Higher earners may also be able to use after-tax 401(k) contributions to set aside even more.
When markets are down and stock values have fallen, the smartest move is often to draw your living expenses from safer, more stable assets and leave your stock investments alone to recover. This is the basic idea behind the Bucket approach to retirement portfolio management. In strong market years — like 2023 through 2025 — you’d tap into appreciated stock gains to cover expenses. In down years, like 2022, you’d leave stocks untouched and instead pull from high-quality bonds, cash, or some combination of both.
If your portfolio carries more risk than is appropriate for your stage of life, it’s not too late to shift toward a more balanced asset mix.
Social Security functions like a steady, inflation-adjusted paycheck — a reliable income source that grows with the cost of living. Waiting to claim benefits can pay off significantly: delaying your filing results in a higher monthly payment that is fully protected against inflation and lasts for the rest of your life. This strategy is especially valuable for the higher earner in a household with a younger spouse, since that elevated benefit would continue for the spouse’s lifetime as well.
Morningstar’s retirement income research found that waiting to file until age 70 does increase lifetime income — but the strategy works best when you have another source of funds to live on in the meantime. The payoff is also greater for those with longer-than-average life expectancies, since they’ll collect those higher inflation-protected payments for more years.
Inflation poses a particular threat to retirees because the purchasing power of income from safer investments erodes over time. On top of that, retirees typically spend more on healthcare, a category where prices have historically risen faster than the overall inflation rate.
Many retirees rely heavily on standard bonds and overlook inflation-protected bonds as part of their retirement strategy. Adding an inflation-protected bond fund to your portfolio is one way to address this gap. Most well-regarded target-date fund series dedicate roughly one-quarter of their bond holdings to inflation-protected securities. Another option is building a laddered portfolio of Treasury Inflation-Protected Securities — bonds that mature at different intervals and provide living expense money throughout retirement.
The early years of retirement can also be an ideal window for tax-planning moves, such as converting traditional IRA funds to a Roth IRA or taking larger-than-required withdrawals from traditional IRAs and 401(k)s. Since you no longer have a work income and won’t face required minimum distributions until age 73, your taxable income — and the taxes you’d owe on those conversions or withdrawals — will likely be lower during this period.
This article was provided by Morningstar. Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast.
