Inflation and a Volatile Stock Market Are Hitting Retired Boomers Especially Hard

As we enter 2023, many of us are exhaling a sigh of relief that we made it through another crazy year. After more than 2 years of turmoil in the markets, in politics and in various health crises, I think it’s time to put 2022 behind and focus on not just getting by but to actually thriving this year. A lot of folks, myself included, saw this past holiday season as a welcome change and something to look forward to with joy. With the record inflation rates we saw this year, you’d think the Grinch would have stolen our Christmas cheer, but according to a recent Deloitte study most Americans planned to spend roughly the same amount in 2022 on gifts ($1455) as they did last year. Of course, that same amount of money probably won’t stretch as far, as the average shopper was only expected to buy nine gifts, compared to 2021’s 16₁.

From celebrating an enormous Thanksgiving dinner to giving gifts around Christmas and Hanukkah to toasting the New Year, the holidays were more expensive this past year. In fact, over a quarter (27 percent) of holiday shoppers surveyed said the holidays will place a strain on their budgets₂. Now, there are always ways to help reduce the financial strain of the season by setting (and sticking to) a budget, shopping for sales and discounts, or gifting your time or homemade items to loved ones. And with the new year brings the opportunity to start planning early for next holiday season by and putting away money throughout the year so that it’s less of a budget hit next November and December. 

For those in or nearing retirement, however, today’s inflation rates combined with a very volatile market are affecting their finances far beyond the holidays.  Many older folks are worried if they’ve saved enough to retire, and if the buying power of their savings will continue to fall in relation to rising prices. Higher inflation not only means the buying power of your take-home pay is shrinking, but also the value of the dollars in your 401(k)s and similar retirement plans won’t go as far as you might have hoped. 

According to a 2022 survey by Voya Financial, 66 percent of Americans are worried about how inflation will affect their ability to save for retirement, and 43 percent have had to tap into finances that they previously had set aside for retirement of because of inflation₃.

And if you’re nearing retirement, your savings themselves may have taken a big enough hit to make you nervous.  During the third quarter of 2022 alone, the average 401(k) balance at Fidelity dropped an average of 23% from a year ago, according to recent Fidelity Investments research, IRA balances dropped nearly 25% year-over-year and 403(b) account holdings—retirement plans typically used by nonprofits—were down 21%₄.

I’ve had conversations recently with several folks who are considering working a few years longer than they intended or transitioning into retirement by working part-time to make up for retirement fund losses. One couple in particular, I’ll call them Lou and Dianne, planned to retire in May of next year and take an extended trip to Italy, Lou’s birthplace. But with the uncertainty of the markets today they realized that they have to put that off for another two years. This is particularly distressing for Lou, who has several older relatives there and wants to spend time with them before it’s too late.

There are many stories like this of plans being changed, retirements being delayed or retirement lifestyles “downgraded” – but it doesn’t have to be the case for everyone. No one can control the inflation or the markets, but we can take steps to weather the extremes more easily.

One of the most crucial things you should do is to have a plan. Your plan should anticipate economic climates like today because we will continue to experience these types of markets in retirement. Part of your plan should include a system that mitigates downside risk. This will include flexibility to move assets around as needed and having a secure source of income when markets are down. Because common wisdom is that you should never pull out of your portfolio when it is down, your plan should involve other sources of income for times like this. 

These sources might include taking Social Security benefits, funds from a savings account, a pension plan or perhaps an annuity. The bottom line is to have a retirement system designed to help weather the inevitable up’s and down’s so that you can relax and enjoy both the holidays and retirement.

So as always – be vigilant and stay alert, because you deserve more!

Have a great week folks.

Jeff Cutter, CPA/PFS, is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. 

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