“Think of inflation as a gradual trickle, much like the proverbial frog slowly boiled in water, its effects creeping up subtly yet delivering discomfort when they fully hit,” remarked Mr. Haynes.
Don’t deceive yourself into believing you can just exit the stock market now with plans to jump back in once things settle. Historically, market gains have come in fits and starts, with the biggest jumps often following right on the heels of substantial drops. Data from J.P. Morgan shows that missing out on just the top 10 trading days over the two decades between 2005 and 2024 could slash your returns by over 40%. Miss 30 of those high-performing days out of the approximately 5,000 trading sessions, and you’d actually end up with losses when factoring in inflation.
### Adjust Your Spending
Tightening your spending belt, even if only for a brief period, can significantly extend the longevity of your financial resources.
For those still in the workforce, every dollar you choose not to spend is a dollar that can be redirected to savings, providing a cushion for when the economy—or the market—takes a downward turn. If you’re already retired, every unspent dollar means less pressure to draw from your reserves during periods when stock prices are not favorable.
Take a good look at your discretionary expenses and find areas where you can cut back. “If you were planning to spend $5,000 or $10,000 on travel, perhaps now isn’t the best time for a major getaway. Also, consider reducing gifts to children or grandchildren,” advised Lazetta Rainey Braxton, a financial expert and founder of the Real Wealth Coterie based in New Haven, Connecticut.
Alternatively, consider a more structured strategy. Instead of adhering strictly to the standard rule of withdrawing 4% from your retirement accounts and then adjusting for inflation each year, Dr. Pfau suggests skipping the inflation-related increase in lean years when stock values take a dip. You could also implement what’s known as ‘guardrails’: limit withdrawals to 3% during tough market years but feel comfortable increasing them to perhaps 5% when the market is robust and growing.
