If there鈥檚 one group likely to be experiencing the most consternation over inflation and economic uncertainty, it鈥檚 those who have just retired or are about to. To make it through this period with their sanity intact, they should .
Assess spending rate
People who have just retired or are about to are particularly vulnerable to sequence-of-returns risk,鈥痺hich means that a bad market shows up early in your retirement. Not only does that early retirement sell-off鈥痜eel鈥痓ad, it actually鈥痠s鈥痓ad because it imperils your portfolio鈥檚 ability to last throughout your retirement years. 滨苍鈥� , we found that the people most likely to run out of money in retirement were鈥� .
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鈥檛 need to be radical to make an impact. 滨苍鈥� , 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鈥檛 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鈥檙e between 60 and 63, you can make a 鈥渟uper-catch-up鈥� 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.
Pull cash flows from safer assets
In a turbulent market environment in which equities have declined, it鈥檚 best to pull any portfolio cash flows from safer assets and leave your stock positions undisturbed. That鈥檚 the general logic behind鈥� . In good years for the stock market, like 2023-25, you鈥檇 be harvesting appreciated equity assets to supply your income needs. In bad ones, like 2022, you鈥檙e 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, .
Play the long game with Social Security
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鈥檙e the higher earner in your family and you have a younger spouse who will receive that higher benefit for their lifetime.
滨苍鈥� , 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.
Revisit inflation protection
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.
Investigate tax-saving strategies
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鈥檛 be subject to required minimum distributions until you鈥檙e 73, your income, and in turn the taxes you鈥檒l 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 .
is director of personal finance and retirement planning for Morningstar and co-host of . Subscribe to her free newsletter, .
Related Links:
Your Retirement Countdown, With Christine Benz
5 Things You Need to Know About RMDs This Year
Retirees Don鈥檛 Need to Fear a Lost Decade. They Need a Plan
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