What if the Next Market Pullback Is Lengthy? A Contingency Plan Is Prudent
We all enjoy seeing our assets climb, but that won't last forever, and a recovery can take a long time. Act now to ensure your assets can carry you through a downturn.
With the stock market trading near record highs, confidence is soaring, and investors are increasingly buying into the good vibes.
Many people think the bull market will continue indefinitely. They reason that President Donald Trump's pro-growth policies will create a durable expansion, with deregulation and decreasing oil prices and mortgage rates fueling the surge.
Market forecasters have no crystal ball, but history teaches us important lessons, such as: The good times don't last forever, and sometimes the warm glow of summer optimism in the market fades into a long, cold winter of harsh economic reality.
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Maybe this era will defy history and the economy will have several more years of solid economic growth. But investors nearing retirement should ask a different question: What if it doesn't?
History shows that periods of confidence often create the conditions for complacency, which can be expensive.
Middle-class realities
After enduring inflation, rising interest rates, regional banking concerns and geopolitical uncertainty, markets have proven remarkably resilient. The S&P 500 has more than doubled from its October 2022 lows, rewarding investors who stayed invested through volatility.
There's a belief among many market experts that any pullbacks will be shallow, and if markets decline, many investors assume recoveries will be swift because that's largely been their recent experience — their recency bias (which we'll explore later). But they're overlooking two important realities:
- The middle class is struggling
- Debt — both personal and the national debt ($40 trillion) — keeps climbing
Those factors could help trigger a prolonged or extreme market pullback.
One challenge in interpreting today's economy is recognizing that experiences vary dramatically. The economy is stronger only for a small percentage of people.
For example, only 3.2% of American retirees have at least $1 million or more in retirement savings. But for many people, their financial situation in today's economic climate isn't so great.
- According to the Federal Reserve Bank of New York, household debt reached about $18.8 trillion in early 2026, an all-time high.
- Getting an affordable mortgage is difficult and burdensome. Mortgage balances, credit card debt, auto loans and student debt have all expanded meaningfully in the last several years.
- Consumers are increasingly relying on loans and debt to cover the rising costs of daily expenses and sustain their lifestyles.
Debt works wonderfully when times are good. But it becomes unforgiving when economic conditions deteriorate.
The danger of recency bias
Some investors and market experts believe that a market pullback will be a 20% to 30% decline at the maximum, and that the recovery will happen within a year.
They have recency bias pointing to recent pullbacks and recoveries, such as events that occurred in 2020, 2022 and 2025. But they fail to consider what happened in the 2007-2009 Great Recession and before that, in the technology crash in 2001.
They've forgotten or never experienced previous bear markets during the 1950s, 1960s, 1970s, the early 1980s and Black Monday of 1987.
This isn't even to speak of the Great Crash of 1929 and the Great Depression of the 1930s. Most people don't believe those events will ever happen again.
The scary part for many investors is that they have an investment and retirement plan that assumes economic recessions will be short-lived, market downturns will be shallow, and the recovery will be quick.
But what if that doesn't happen? Investors must contemplate that question and plan for it.
Prudent investors need to ask these uncomfortable questions:
- What if growth slows unexpectedly?
- What if inflation proves stickier?
- What if deficits eventually pressure interest rates?
- What if consumers begin pulling back?
- What if the next bear market looks more like 2000 or 2008 than 2020?
For those in retirement or nearing it, how do they prepare? They shouldn't ignore the realities of the past. As the famous maxim goes, "History doesn't repeat exactly, but it often rhymes."
Have peace of mind by creating your own economic reality
There are so many factors out of our control that will often give us reasons to worry — wars, politics, inflation, interest rates, market headlines, etc.
But financial confidence doesn't come from predicting the future correctly. It comes from preparing thoughtfully. Focus on what you can control — your spending, debt, tax-mitigation strategies, market risk exposure and income planning.
Just as in proper business planning, you should consider the worst-case scenario and develop a contingency plan. Create your own economic reality by building a retirement framework that will protect you in a market pullback, a framework that prevents you from having to adjust your lifestyle.
Because eventually, another prolonged downturn will arrive. No one knows when. But history suggests it will happen again.
Stress-test common retirement assumptions. Ask yourself:
- "If markets fell 35% and remained down for three years or more, would my plan still work?"
- "In the event of a market decline, can my lifestyle be sustained, or might I be forced to reduce spending or not travel as desired?"
- "If inflation remained elevated, would my income sustain my lifestyle?"
- "Could I maintain peace of mind regardless of market headlines?"
These questions matter — especially when retirement shifts from the accumulation stage to the distribution stage.
It's not the time for a high-risk, high-reward approach
Savings goals for many people are way ahead of schedule. Protect the harvest you enjoy now and store up for a long winter, so when the market is disrupted for a lengthy period, you have what you need and can help family members and others, too.
The most successful retirees we meet are rarely the ones who took the greatest risks. Often, they are the ones who planned thoughtfully.
- They retired earlier than expected because their conservative plans exceeded expectations
- Their spending confidence increased because reality exceeded assumptions
- They were able to travel more, give more, help family members more and enjoy life more — not because they chased the upside of the market, but because they built margin into their lives
Others implemented tax-efficient strategies that allowed more of their wealth to remain invested. Some created robust income streams that were less dependent on daily market fluctuations.
A comfortable retirement in these uncertain times requires reducing your risk and taking a conservative approach.
You've spent decades working, saving, investing, sacrificing and delaying gratification. You built wealth so that one day your money could begin working for you.
Don't leave that next chapter to chance. Plan carefully enough that if markets disappoint, your lifestyle remains intact, your confidence remains strong and your peace of mind remains unmoved.
That might ultimately be the greatest return an investment plan can provide.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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