Many people assume that simply having money now is enough to provide them with a comfortable lifestyle when they reach retirement age. While this may hold true in normal economic times, it doesn’t necessarily now. Rising interest rates are putting strain on everyone’s financial situation, thanks to inflation.
Meanwhile, market volatility is lowering the value of some once-valuable investments, but it doesn’t stop there: Supply chain issues have become a heavy anchor for some previously-promising stocks in retirement (and retirees’) portfolios.
That’s why this article focuses on the need to make your retirement plan resistant to today’s economic weather. You can do it (and you’ll probably be glad that you did), but it requires getting proactive.
This article considers the following:
- Has inflation made your retirement plan sad?
- Luxury living now doesn’t guarantee a comfortable retirement
- To retire in style, diversify your portfolio’s assets
- Plan a retirement you’ll love with Scott Marsh Financial
Has Inflation Made Your Retirement Plan Sad?
Inflation is an economic term describing an increase in prices over time caused by the decreasing value of a currency. As inflation rises, the purchasing power of each dollar decreases, making goods and services more and more expensive. This means, over time, that you’ll need more dollars to purchase the same item than you would have if there had been no inflation.
Here’s an example: As you read this, groceries are generally more expensive than they were two years ago. This is why inflation can have a significant impact on retirement planning. It affects how much money you will need for your retirement income and expenses. As prices rise, so does the amount of money you need for housing, health care, food, and entertainment costs.
It would be nice if inflation was the only shark in the water, but your retirement plan may also be threatened by stock market volatility, as well. The resulting lowering of some assets’ value has alarmed investors from all tax brackets. That doesn’t mean panic-selling is a good idea, but it’s an economic trend that even high-net-worth individuals and families should take seriously (assuming you want to keep your high net worth).
Luxury Living Now Doesn’t Guarantee a Comfortable Retirement
For the reasons explained above, enjoying a lifestyle of luxury now doesn’t necessarily guarantee that you’ll enjoy a comfortable retirement. In fact, if future inflation rates aren’t considered in your financial planning, you’re gambling with having to cut back in your golden years (or possibly even downsizing). I’m not saying you’ll go broke, but you don’t want to wait until then to find out the difference that making adjustments today could have made.
Inflation has been steadily increasing the cost of living and making it more difficult for individuals and families to save securely for retirement. Many investments that once offered long-term growth potential don’t keep up with inflationary trends anymore. The classic 60/40 ratio, for instance, is much less reliable. As a result, some retirees aren’t seeing the same returns on their investments that they did a few years ago.
Again, volatility is another factor that affects both wealth-building and retirement plans. This makes it difficult for investors to accurately predict which investments will yield returns in the future, resulting in losses when the markets suddenly shift downward. Keeping calm is a good rule of thumb, but it’s only human to wonder how long these economic storms will last.
Fortunately, we have options for protecting your retirement savings from both inflation and volatility. One is to diversify your portfolio by investing in multiple types of assets (which we delve into below).
New to the Concept of Financial Planning? Everyone Is at Some Point. So, Here’s What You Can Expect (and You Don’t Have to Dread).
To Retire in Style, Diversify Your Portfolio’s Assets
With its stunning landscapes, lush forests, magnificent mountains, and incredible national parks, Utah has something for everyone. Retiring here can be a dream come true for affluent individuals and families. However, how do you ensure that your retirement years in the Beehive State are as luxurious as possible?
The answer is simple: diversify your portfolio’s assets. This is the best way to minimize your risk while potentially maximizing returns on investments over time. Investing in several different asset class types (such as stocks, bonds, mutual funds, and real estate) can help to reduce your overall risk while possibly creating a more stable income to support yourself during retirement.
Put another way, avoiding over-investing into any single asset class creates a kind of firewall between each of your investments. This means that when a single asset loses value, the rest of your portfolio doesn’t diminish with it. In addition to minimizing risk and creating stability this way, diversifying your portfolio also allows more options when it comes to choosing investment strategies.
For example, if one asset class isn’t performing well or doesn’t fit into your financial goals anymore, you can shift funds elsewhere without having to worry about major changes in capital gains or losses. This flexibility can allow you to adjust your investments quickly and more efficiently, should you have to in response to market forces and other economic factors.
It’s also worth noting that by diversifying your portfolio now, you can capitalize on any potential opportunities that arise during your retirement process later. For instance, let’s say that there’s an opportunity for real estate investing in Utah that looks promising: If it requires additional capital, you could already have extra funds set aside from other parts of your portfolio to help finance this venture.
Plan a Retirement You’ll Love with Scott Marsh Financial
Scott Marsh Financial is a CERTIFIED FINANCIAL PLANNER™ in Utah with decades of experience in retirement planning for high-net-worth individuals. We offer practical, comprehensive insights tailored to your specific needs and monetary goals.
This includes asset allocation, tax-efficient investing strategies, estate planning services, and risk management solutions. We also provide wealth financial planning for things such as long-term care planning, charitable giving strategies (geared to maximize your resulting deductions), and more.
Contact us to make an appointment.