ForbesAdvisor.com recently reported, “According to a 2020 survey from Allianz, nearly half of Americans are worried that rising prices in retirement will cause basic expenses to be unaffordable once they stop working.
But there’s an interesting wrinkle to that Allianz survey: Actual retirees were much more optimistic about inflation than those still a ways off. For instance, two-thirds of pre-retirees thought inflation would imperil their quality of life, compared to just 40% of actual retirees.”1
Why aren’t retirees worried? This group may have a well-kept secret. An average 65 million Americans receive a Social Security check each month with an average monthly benefit of $1,658. That payment averages almost $19,900 per person annually and, if stats hold true, represents one-third to one-half of each person’s retirement income.
Here’s the secret: Those checks adjust for inflation!
Beyond Social Security benefits, retirees tend to have a diversified portfolio growing their nest egg. According to Boston College Center for Retirement Research, income sources are allocated as such: 60% Social Security, 17% Pension/401(k), 12% Primary Residence, and 5% Savings/Tax-advantaged Accounts. Historically, many of these investments use a Vanguard report as a proxy to funnel their money into balanced strategies using stocks and bonds to minimize risk and maximize gains.
The secret here: These investments tend to outperform inflation over time!
After considering your income and nest egg, it’s worth looking at what retired lifestyles tend to look like. Michael Kitces, Certified Financial Planner, talks about the “end-of-history illusion,” which demonstrates that typically people imagine their retirement life based on their current “likes.” Still, when they retire, they change things up. Some retirees find themselves with less saved than they intended, and others don’t like seeing their nest egg balances go down—either way, they make changes centered on people rather than things.
One more secret: Retirees are spending less than they anticipated!
With these perspectives in mind, it’s worth noting that a rise in inflation will impact your savings—the time between now and your retirement date determines if there’s time for correction. The average inflation rate in the US from 1961 to 2020 was 3.3%. Since the Pandemic of 2019, that number has exceeded 8%, thanks partly to supply chain issues and consumer demand.2 When making retirement plans, this jump in inflation rates may significantly impact your portfolio today and your retirement tomorrow. If you’re feeling anxious, maybe it’s time to reevaluate your financial plan.
Inflation and market changes will always impact your financial plan, so it’s important to know how to react. We’re here to help with your financial plan and can introduce you to other experts that can advise on your investments, if necessary. Call our office today at (603) 261-3736.
Bob has a passion for making your money work hard for you. He takes profound joy in ironing out a plan for a long and comfortable retirement, no matter what your current income or level of wealth. With a work ethic second to none, he has a zeal for transforming uncertainty into stable ways for you to protect your future and your family. He knows that the quality of your life you enjoy today can remain as rewarding—or even better—after retirement.
With a strong background in information technology, Carol is instrumental in building operational policies and strategies that keep the organization functioning smoothly. Carol’s organizational skills and her flexibility to jump from priority to priority along with her commitment to customer service makes her an essential part of the Grimard Financial team. When Carol is not working with the Grimard Financial Family, she is a very creative and accomplished photographer.