{"id":13177,"date":"2024-05-22T20:33:24","date_gmt":"2024-05-22T20:33:24","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13177"},"modified":"2024-05-22T20:33:24","modified_gmt":"2024-05-22T20:33:24","slug":"inflations-impact-on-retirement-assets","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/inflations-impact-on-retirement-assets\/","title":{"rendered":"Inflation’s Impact On Retirement Assets"},"content":{"rendered":"\n

Karen B. from Logan, UT asks: <\/em>Hi Mitch, with higher prices in just about every spending category for us, my husband and I had to withdraw more from our 401(k) than we anticipated last year. The same will likely apply this year too. Our 401(k) has gone up over the past couple of years, but I worry about the higher withdrawal amount considering prices aren\u2019t going any lower. Any thoughts or advice? Thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for sending your question. Many retirees today are confronting this very issue. According to a recent study released by Boston College\u2019s Center for Retirement Research, about 25% of retirees and near-retirees increased their portfolio withdrawal rates between 2021 and 2023, which corresponds with the inflation shock of 2022. According to the research, distributions went up by an average of $1,810 in each of those years.1<\/sup><\/p>\n\n\n\n

But here\u2019s the real gut-wrenching takeaway from the study: Boston College estimates that inflation caused a 14.2% decline in financial wealth held by middle-income retirees over the past few years.<\/em><\/p>\n\n\n\n

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The decline in financial wealth tends to be higher for those with lower retirement account balances, as higher withdrawal rates impact those accounts more. However, the research also notes that lower retirement account balances tend to hold more cash and bonds than larger retirement accounts, which tend to have higher allocations to stocks. Indeed, the study found that retirees in the top third of wealth distribution could see financial wealth reduced by an average of -4.3% by 2025, while those in the lower third could experience an -18.8% reduction over the same period.<\/p>\n\n\n\n

Again, inflation is to blame here. Higher prices of everything from groceries to gas, to homeowner\u2019s insurance can reduce the value of cash and fixed income in a retirement portfolio. Higher interest rates help retirees, but in many cases, equity-like returns are really what\u2019s needed to absorb the higher cost of living while also preserving\u2014or even growing\u2014the value of your liquid assets. Put another way, I think most retirees need to own stocks as part of their diversified asset allocation. Over the past few years, stocks have proven a strong inflation hedge.<\/p>\n\n\n\n

I cannot speak to your specific asset allocation, Karen, as I do not know anything about your financial situation or your goals. But my advice would be to ensure that you\u2019re managing your retirement assets for long-term growth in addition to providing you retirement income. Those two goals go hand-in-hand, in my view.<\/p>\n\n\n\n

I also have a message for near-retirees. According to the Boston College study, 39% of survey respondents said they saved less from 2021 to 2023, and nearly 25% said they spent some savings. Near-retirees should be doing the opposite\u2014saving more to account for the higher level of prices, and thinking about orienting your long-term goals towards growth in addition to income.<\/p>\n\n\n\n

Now, if you\u2019re an investor who\u2019s looking for advice on what to do with your money during retirement, I recommend taking a look at our exclusive guide, 4 Strategies for Spending Money in Retirement3<\/sup><\/a><\/em><\/span><\/strong>. In this guide, we explore some effective strategies and best practices that investors should consider when developing a retirement spending plan. You\u2019ll get insight on:<\/p>\n\n\n\n

\u2022 Spending 101: Understanding tax buckets
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If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Retirement portfolio withdrawals have risen over the last several years due to inflation. Mitch offers a few ideas to protect retirement assets.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13177","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13177"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13177\/revisions"}],"predecessor-version":[{"id":13179,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13177\/revisions\/13179"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}