Opinion: Inflation, longevity and a volatile stock market: how realistic are your retirement plans?


Many Americans who began saving for retirement when they joined the workforce likely had an idealized picture in mind of what retirement would be like when they got there. This includes what their lifestyle might look like, whether that meant moving closer to family, traveling or downsizing to a smaller home.

However, with inflation reaching 40-year highs, and recession fears continuing to increase, many are wondering if a ‘traditional’ retirement is still realistic. The answer to that is “yes” – but getting there requires foresight and planning. By taking a few steps to ensure their assets are protected from the effects of inflation and that they don’t outlive their money, people can make it more likely that they’ll be able to attain a fulfilling and enjoyable retirement.

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Market challenges 

According to a recent survey from F&G, 80% of Americans aged 50+ are worried about the impact of inflation on their retirement. This isn’t too shocking given historic inflation levels, but what stands out is that 61% of retirees are actually changing how they budget for everyday expenses such as food and healthcare.

Financial pressures have made some Americans look at their retirement savings and realize that they may need to continue working part time to make ends meet once they retire. In fact, nearly one third (31%) of preretirees say it is unrealistic for them to retire without working at least part-time and 50% of preretirees say they expect to work in some capacity into their 70s.

While inflation is a big part of this puzzle, fears of a recession, as well as rising healthcare costs, also loom large. In F&G’s survey, 71% of respondents were very or somewhat concerned about a recession in retirement. Similarly, 65% were concerned about healthcare and/or long-term care costs for themselves or their partner in retirement. If market conditions continue to trend downward, it’s possible even more retirees will return to work in some capacity to make ends meet.

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Risk of unknown longevity

It’s true that as you get older, the age you’re expected to live also increases. In this environment, it’s more important than ever for Americans to not only make sure they are protected against market volatility, but also to take steps to ensure their savings lasts through their lifetime. Longevity risk is often overlooked, but it’s particularly important to consider when building a base of savings to support essential expenses as well as unexpected costs like healthcare in retirement.

Regardless of how prepared an individual retiree might feel, nobody wants to run out of money when they reach their 85th birthday if they may live for another 10 years.

Based on research from the American College of Financial Services, a healthy 65-year-old woman has a 50% chance of living beyond age 90, a 25% chance of living to age 95, and a nearly 10% chance of living to age 100. If she spends down her savings at a rate that would run out at age 90, she faces a 50% chance of either having to cut back in her 80s or depleting her savings. If she spreads her savings out to age 95, she still faces a significant risk that her savings will not support her expected lifestyle.

A retiree who doesn’t want to face the risk of running out of money will need to spread her savings over an extended number of years. Spreading out savings to age 100 will mean spending significantly less than if she spread her savings out to age 90. In this hypothetical scenario, caution may motivate her to cut back on unnecessary expenses to address the risk of unknown longevity — potentially not allowing her to enjoy life to the fullest in retirement.

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Missed opportunities

One of the biggest missed opportunities is when individuals don’t appropriately shift their asset allocations nearing retirement. While F&G’s survey found that 67% of Americans aged 50+ want steady income in retirement, too many are still relying on stocks (47%) and savings accounts (75%) in retirement, which don’t typically provide protection against inflation or market risk. The large percentage relying on stocks to fund income can be concerning as the risk of market loss early in or even close to retirement can potentially force a retiree to readjust their retirement date or expected lifestyle.

Solving the problem

There is no ‘one-size-fits-all’ retirement plan, which means Americans can’t be passive with their retirement savings. Rather, they need to create a personalized plan for both the short and long term. If they are concerned about how inflation may impact them or are not already planning for longevity risk, there’s no better time than now to re-evaluate their portfolio.

Fortunately, retirees have a number of options available to them. For example, an annuity that promises a steady income stream can protect against the risk of outliving savings. When evaluating these, it’s important to review the terms carefully or consult with an adviser to see which one is right for a person’s specific financial needs. For example, some annuities protect against the rising costs of inflation, while others offer principal protection which can mitigate the impacts of an economic downturn on retirement savings but can be limited in how much upside they offer. Still others provide lifetime income guarantees similar to traditional pension plans.

By speaking with a financial adviser and taking the steps to do their due diligence, retirees can find the right mix of products and solutions that are the best fit for them to achieve their financial and retirement goals. If they accomplish that, Americans can worry less about whether they’ll be able to retire and more about enjoying retirement.

Chris Blunt is president and chief executive of F&G, a provider of annuities and life insurance, and Michael Finke, Ph.D., is a professor and Frank M. Engle Chair of Economic Security at The American College of Financial Services.

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