While inflation has cooled in October, near-retirees and retirees alike are still facing a storm of rising costs and high challenges.
Recent data has found that more investors—and even advisors and financial professionals—are increasingly worried about the economy. The Nationwide Retirement Institute reported 39% of investors are optimistic about the financial outlook in the next year, down from 49% in 2021. Forty-eight percent of advisors and financial professionals remain positive on their financial outlook, a 15% decline from 63% last year.
Inflation worries have dominated the thoughts of investors, who remain nervous of their financial plan and ability to retire. The Nationwide research found inflation took the top spot as the main financial concern for investors in the next 12 months, with almost half (46%) stating their anxieties over the hikes.
“I hear it constantly from clients,” said Jody D’Agostini, CFP, financial professional at Equitable Advisors, whose clients range from age 40 to 70 years old. “Everyone is talking about it at every meeting, asking if it’s going to go away. Where they’ve dreamed of this great retirement, now all these things are priced more than originally planned.”
Whereas financial plans are generally primed with a normal inflation rate at about 3%, the current 7.7% is a hefty change from what near-retirees and retirees had originally prepared for beforehand. “Now [retirees] are spending more out of their nest egg than they wanted to spend, to ensure that their expenses are covered,” explained D’Agostini.
It’s no wonder why more Americans are now having trouble saving for retirement. An October Bankrate survey found that over half (54%) of participants surveyed said inflation was a key reason for their delay in savings. Of that number, 35% said they are “significantly behind.”
To combat inflation, savers, near-retirees, and retirees can work through a series of implementations that will keep them at bay until inflation rates recede.
First, investors should tweak or modify their current financial plan if they haven’t already done so, says D’Agostini. Instead of going out to eat several times a week, only go out once. Planning a trip to Europe? Vacationing in the U.S. can be far cheaper. House too big? Look at downsizing. All these alternatives can push that extra money to retirement savings, rather than having to worry about cutting costs during retirement.
“Don’t make these adjustments in the rearview, make them while looking ahead,” D’Agostini said. “We know we have insistent inflation that is going to be with us for a few years. It may not be as high as it is now, but let’s not go into your nest egg beyond what makes sense.”
Next, near-retirees and retirees can consider postponing their Social Security checks for as long as possible. Each year participants delay their Social Security, which can be claimed from ages 62 to 70, they increase their benefit by 7% to 8% per year. “It really is the best pension that you can have,” said D’Agostini. As benefits are adjusted for inflation, waiting longer to begin receiving those checks can be an incredibly profitable strategy for both near-retirees and retirees.
Weaving in guaranteed sources of income, like an inflation-protected annuity, is another surefire tactic to receive consistent monies throughout retirement, she added. D’Agostini estimates about three to four market downturns during a 30-year retirement, therefore utilizing an annuity provides consistent income while ensuring longevity risk. This, coupled with a 401k and Social Security, can be enough to pay for fixed expenses during retirement.
“There’s nothing more satisfying and reassuring to a client during this time when you can say, between all these retirement vehicles, we can pay your bills,” said D’Agostini. “If we can just control those discretionary costs, then we can ride this out. The conversation becomes so much easier when you have those other sources of income.”
Other investments that can keep pace with inflation include treasury inflation-protectors (TIPs), I bonds, and alternative investments like commodities and precious metals, D’Agostini added.
In addition to these offerings, some may also consider a phased retirement. Whether it’s a part-time gig, or working from home in your pajamas, augmenting that income for a year or more is an optimal solution to securing additional income when nearing or in retirement.
D’Agostini credits the Great Resignation for providing these multiple alternatives to how society thinks of working, and ultimately, paving a newfound way to work during retirement. “During this period, there were a lot of people who wanted to get out and not go back to the traditional workspace,” she said. “You don’t even need to travel to work now. If you can augment your income for a few more years, then you’re staying socially engaged, you’re plugged in—there are a lot of good reasons why you can stay in the workforce through periods like this.”
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