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Inflation and Retirement: Managing Economic Volatility for Soon-to-Be Retirees

Financial resilience is more important than ever before, thanks to turbulence in all corners of the globe. 

However, inflation and market volatility are putting those on the verge of retirement on edge. A survey conducted this year by the Employee Benefit Research Institute found half of the participating retirees are less confident about living through retirement due to inflation. 

Retirement planning can be complex at the best of times, making effective 401(k) plans critical in the less certain economic environments of today.

The Effect of Rising Inflation on Those Looking to Retire

Current and soon-to-be retirees are becoming ever-worried about the type of lifestyle they can afford amid rapidly increasing inflation

While inflation itself is a single number, financial experts say it affects people differently based on how they spend money. 

As individuals age, they tend to spend less on clothing, entertainment, food, and transport, the latter two being major inflation drivers. Therefore, some retirees may be less impacted by inflation than workers. 

Higher across-the-board expenses impose extra risks on retirement plans, as costs could rise faster than fixed incomes. Not to mention the Federal Reserve’s response to increased inflation has been to hike rates, negatively impacting the value of existing fixed investments. 

Navigating the Tumultuous Economy Nearing Retirement 

A solid financial foundation is the key to unlocking a comfortable retirement. While it’s trickier to establish during inflation and stock market volatility, financial advisors provide advice in the five following areas to give soon-to-be retirees a chance to build suitable nest eggs:

Making the Workplace Work

Financial advisors play a critical role in helping those still in the workplace reach their retirement goals. Companies providing such services fare better in terms of retention and employee attraction. 

Anybody looking to retire should take advantage of company benefits like 401(k) plans, effectively making the workplace work for them. Most corporations match employee contributions, getting workers to their retirement goals sooner. 

Transferring to 360-Degree Retirement Planning

Retirement isn’t an economic vacuum. Every slice of the financial pie needs to work together, including:

  • Emergency savings
  • Debt
  • Budgeting
  • Investing
  • Equity compensation
  • Asset allocation
  • Portfolio rebalancing

Financial advisors stress the importance of 360-degree planning resources, including coaching and economic wellness, to ensure a comprehensive retirement package. 

Those soon to retire should utilize budgeting tools alongside financial coaches to expertly stretch every dollar, despite volatile conditions. 

Utilizing Outside Resources

When inflation and other economic factors are uncertain, retirement plans should be more than just 401(k)s. They must also tap into outside resources like Medicare, long-term-care insurance, and Social Security. 

In the past 22 years, Social Security benefits have lost a significant (40%) portion of their buying power, thanks to inflation. Therefore, people on the verge of retirement should seek advice on the actual reach of these resources. 

Expanding Retirement Advisors

Overall financial wellness, taxes, and estate planning are key but typically overlooked features of planning for retirement. All three are essential for proper asset protection, preparation for the unexpected, and reduction of taxes, conflicts, and admin fees.

Ideally, workers should speak with an accountant and a 401(k) specialist before reaching the point of retirement. That way, they know their nest eggs are secure before it’s too late. 

Demystifying Retirement Plans

Market selloffs cause portfolio asset allocations to shift as bonds rally. While retirement investors are often shocked by the fluctuations, financial advisors are not, increasing their importance within retirement planning. 

Soon-to-be retirees should find specific professional help to understand how they need to interpret retirement assets during inflation and market movements. 

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