Top 5 Financial Planning Concerns for Retirees-(4) Inflation and Stock Market Volatility Risks
Continuing our series on the top concerns of retirees for both financial and non-financial issues, here is the fourth Financial Planning concern.
(4) Inflation and Stock Market Volatility Risks are problematic for retirees since they work against each other in many respects. If you are concerned about what is happening with the stock market then you might be tempted to shift your money from stock investments to bonds or cash to reduce that market risk. But that can then put you at risk for loss of purchasing power due to inflation if those alternatives to stock investments don’t earn rates of return that match up to the current inflation rate.
This can get technical and complicated pretty quickly, and because of that it can become even more stressful for retirees to deal with without the guidance of an experienced professional. Rarely is there any “all-in-one” solution to address both of these concerns, and there is definitely no “one size fits all” answer.
As an example of the inflation risk, let’s look at three retirees, one who retired in 2000, one in 2010, and one in 2020. According to official government data, in order to match the value of what $100 would have purchased in the year that they retired, the 2000 retiree would need $192.42 today, the 2010 retiree would need $149.89, and the 2020 retiree would need $125.91. If these retirees kept most of their money in low interest bank accounts (or in a box under their bed), they would be unlikely to have matched the inflation rate over time and would have lost purchasing power. Over a long period of time this can be disastrous.
On the other hand, if those same retirees had put all of their money into the stock market they would have had a wild ride over those years and, based on my own experience with clients facing market volatility, they would very likely have taken action at the worst possible time and locked in losses or at least reduced potential gains.
By working with an experienced financial professional who specializes in retirement income, taxation, and investment issues, you can have a sustainable financial strategy that addresses your concerns about both inflation and market risks, while also providing you with tax efficiency, and perhaps even permission to spend your hard-earned money rather than keeping it locked away thinking you might need it down the road.
Safe Harbor Financial Advisors can be your resource for retirement success. Learn more about us by visiting our website at www.SafeHarbor.financial where you will find information about our cash flow approach to retirement planning, the value of using a Retirement Success Advocate, and a list of our standard projects and fees. Or you can call Safe Harbor at 302-313-6644 or email us at info@safeharborfinancialadvisors.com for an initial no-cost, no-obligation assessment meeting.
Stay tuned for the rest of the Top 5 Financial Planning Concerns for Retirees in future posts, as well as the Top 5 Non-Financial Planning Concerns for Retirees.
