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Retirement Planning and Current Economic Conditions

Retirement Planning and Current Economic Conditions Fitzwilliams Financial

The economic state we are in right now is intricate and, in some ways, has never been experienced before. The coronavirus has caused massive alterations in how the market functions, and we need to change our approach to retirement planning.

Inflation

Government payouts were a prominent feature of the pandemic. However, the danger is that these payouts might cause inflation to soar, and when compounded with regular inflation, the consequences could be quite severe.[1] You have probably noticed that the cost of everyday things, such as food and fuel, has gone up significantly.

Shifts in the world economy

Throughout the years, the world economy saw an increase in development. With more sophisticated means of traveling and transporting goods, businesses started to venture into other countries, causing an increase in industry worldwide. This led to a period of rapid economic growth.[2] However, this trend is now decreasing as nations are becoming more protective of their industries and are no longer implementing an open-door policy. This is a matter of concern, as China is a major exporter of goods, and if they stop trading with other countries, it could have a disastrous effect on the world economy and our own.[3]

Shifts in the workforce

The effects of the pandemic have caused a reduction in the country’s labor force. Current salary increases are not able to keep up with inflation. This means that even if a person is getting a yearly raise, it’s likely that it is not actually creating more spending money for them. This is a substantial issue because if employees don’t believe they are earning enough, they probably won’t be spending money on consumer goods, which is vital for keeping the economy afloat.[4]

What this means for you

With the current economic situation being uncertain, retirees and pre-retirees should be aware of the impact inflation has on their savings. Due to the instability of the market, investments must be made with caution, taking all related factors into account. If you are in need of financial advice during this period of uncertainty, feel free to contact us for a free assessment of your finances.

When people think about retirement planning, they often focus on one question: How much money will I need?

I believe another question can be just as important: What will that money be able to buy?

Inflation can gradually change the cost of groceries, housing, healthcare, transportation, travel, and many of the other expenses people may encounter throughout retirement. As those costs change, the purchasing power of a dollar may change with them.

That is why retirement planning can involve more than building an account balance or reaching a particular savings target. A comprehensive financial plan may also need to consider future

spending, retirement income needs, time horizon, inflation, investment strategy, and how someone’s financial circumstances could evolve over time.

In this Financial Forecast discussion, I explore how inflation can affect everyday expenses and why purchasing power may matter when evaluating a long-term retirement strategy. I also discuss why investors may benefit from looking at their financial decisions within the broader context of their goals rather than focusing on any one economic factor in isolation.

No one can know exactly what prices, markets, or economic conditions will look like years from now. Planning can instead involve evaluating different possibilities and building a strategy that may be able to adapt as circumstances change.

Watch the video to learn more about how inflation and changing expenses can fit into the retirement planning conversation.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment advisor. FWM and Fitzwilliams Financial are affiliated companies. The content in this video is for informational purposes only and is not personalized investment advice or a solicitation to buy or sell any security. We do not provide tax or legal advice. Media appearances are for informational purposes only and do not constitute an endorsement. Investing involves risk.
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