Protecting Retirement Portfolios in a Bear Market

inflation retirement savings

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Inflation is cutting into people’s day-to-day lives, and is now impacting their retirement portfolios, too.

According to a study by the Employee Benefit Research Institute, over a quarter of retirees are spending more than they can afford due to the pressures of inflation and a lack of knowledge with common retirement income strategies. Employees are also being impacted by the market—a Schwab Retirement Plan Services annual survey found most workers ranked inflation as a top obstacle for a comfortable retirement, including cutting back on their savings to account for higher costs.

As a result, employees saving for, and nearing retirement are looking to their employers for the latest tools, features, and strategies to mitigate longevity risk in their retirement journey. This can range from guaranteed lifetime income products, prioritizing retirement tools, and even implementing strategies such as taking smarter withdrawals, if needed, says Brendan Curran, MD, head of U.S. Defined Contribution Investment Strategy at State Street Global Advisors (SSGA).

“It’s the cost-of-living crisis, it’s the fact that people are feeling unhappy in their personal lives, and it translates over into concern around retirement,” added Curran. “We continue to hear that employees increasingly look to and trust their employer.”

Consider guaranteed lifetime income products

While some may be skeptical about them, annuity products can serve as a safety tool for those increasingly worried about longevity risk due to its zero-downside volatility, says Curran. For example, income strategies such as variable annuities can maintain purchasing power throughout retirement if the investment decisions increase payments to cover inflation.

Because annuity payouts are tied to interest rates, the benefit of annuities has moved in the opposite direction, where the payout rates on deferred annuities are up 60% year-over-year, Curran added.

“You’re getting more for your money that you put in these guaranteed income products,” he continued.

Withdraw smarter

Withdrawing doesn’t have to come with a 10% penalty. Instead, more retirees are considering a hybrid approach to their retirement security that mitigates withdrawals early on, said Curran.

Participants and employees want flexibility in their early years of retirement, like their 60s and 70s. Many will work part-time during this initial time and hold off on withdrawing from their annuities. They may choose to avoid spending any guaranteed income until they reach their 80s and look for more stability and security in their retirement. It’s in this period where retirees may see a greater build on their retirement income while avoiding longevity risk. However, this is all dependent on their own retirement journey and the many factors involved, including ability to work, spending needs, and savings built.

“When we think about making smart withdrawals with annuities in retirement income, you are trying to strike this balance between flexibility and security,” said Curran. “To do so, you have to consider the participants time horizon and where they are in their retirement journey.”

Prioritize retirement tools  

As employees and retirees look for ways to navigate inflation and its effect on savings, there are several other tools, features, and education that plan sponsors can implement to help combat the impact.

First, it’s worthy to note that if able to, adding extra contributions to retirement savings vehicles will always help prepare for what could be a decades-long role in retirement, said Curran.

Next, consider the role of Social Security in your retirement planning. “The decision and ability to delay Social Security has a demonstrable impact on what you can expect out of that program,” noted Curran. “For those who can consider and afford delaying Social Security, that’s a powerful tool.”

Additional features include traditional income calculators, systematic withdrawal tools, and annuity options like institutional quality annuities, in-plan deferred annuity solutions, and alternative annuities. “It’s never too early to start asking those questions to employers and recordkeepers, to understand what tools they might offer that could help prepare [employees]and put [them] in a good spot to retire,” Curran concluded.

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