Retirement planning can be stressful even in the best of times. With so many factors and moving parts to consider, how do you determine what’s right for you? As we have witnessed recently, the state of the world can change in an instant. What may be a great retirement plan one year could end up being a lot less, or even a problem, the next.
Though there are many things to think about when you’re putting together your retirement plan, here are five current day issues that can play into your decisions.
1. Increasing Inflation
So you’ve built your nest egg and a healthy savings account. But do you know how much it will cost to live in retirement? Will inflation impact that nest egg? What are the risks of inflation outliving your savings?
A lot of people don’t consider the impact of inflation until they’re retired. But if you plan ahead, you’ll be better prepared to distribute your wealth in retirement. Even if we can’t say for sure how high inflation might go during your retirement, we can start planning now for what it might look like.
Diversifying your portfolio into assets less affected by inflation is a good start. For example, real estate and commodities may be alternatives to consider during periods of high inflation.
2. Increasing Cost of Real Estate
Part and parcel with rising inflation is the rising cost of real estate. Whether you are planning to downsize, move to a new city or just buy a new home, all of these costs are likely to go up in the coming years.
Higher real estate costs can be troubling for those nearing retirement. If you currently have a mortgage, paying it down as much as possible can help protect you from rising interest rates and inflation. This is because the more you owe on your mortgage, the more of your fixed income will be spent on loan payments and interest costs.
3. Geopolitical Uncertainties
For many investors, geopolitics is like the weather. Everybody talks about it, but few people can do anything about it. However, just like a bad storm can damage your house, geopolitical risk can affect your portfolio.
Since the future is unknowable by definition, diversifying your portfolio is one of the possible ways to prepare for global uncertainties. You can do that by:
- Include a mix of assets in your portfolio, including stocks, bonds and cash.
- Selecting a mix of investments with different risk levels and potential returns.
- Spreading your investments across a variety of industries and sectors.
If you’re worried about the global climate, talking to a financial professional can be a good way to get your concerns out in the open and formulate a plan for how you should respond.
4. Rising Interest Rates
The Federal Reserve has raised interest rates recently and is likely to raise them again in the future. In terms of retirement planning, that means people who are still working have to be wary of how higher rates affect their 401(k) or other retirement plans, while retirees on fixed incomes have to adapt to a new reality.
Your retirement planning should account for the possibility of higher rates — and you should also understand how rising rates can affect your portfolio, even those assets that are less exposed to rate changes.
5. Cost of Travel
Maybe your wish is to travel the world upon retirement. Although more and more people are choosing retirement travel, there is a growing concern that economic uncertainty around the world can make it hard to commit to a travel plan.
The general cost of travel is rising each year, with no signs of slowing down, making it difficult for older adults to afford the trips they want to take. But if you incorporate travel into your retirement plans, you should be able to save enough for plenty of adventures.
Retire With Confidence. Take Control. Make the Most of Your Money.
Don’t let the uncertainty of the global economy hold you back from being retirement ready. Whether it’s about war or the market flashing red, there’s nothing more powerful for defeating anxiety than creating a plan.
Instead of asking, “Should I retire?,” make a plan. When you have a clear plan, your money works for you, not the other way around. And having a financial professional at your side to help you adjust that plan as circumstances change is one of the most valuable things you can do.
This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2022. All rights reserved. Member FINRA and SIPC.