The Economy Threw a Curveball at Retirees in 2022

The Economy Threw a Curveball at Retirees in 2022 Hilltop Wealth Solutions

The economy in 2022 posed difficulties for a lot of people, and retirees have had it even harder. The impact of the Russia-Ukraine conflict, the aftermath of the pandemic on the economy, as well as the increase in inflation and interest rates, have been felt globally. As we start off a new year, it is essential to understand the consequences of these variables on your financial situation as a retiree.

Inflation Came in Hard

Between 1991 and 2021, inflation averaged 2.5% per year, which is nearly the same as the 2% benchmark that the Federal Reserve strives for and is thought to be a sign of a flourishing economy.[1] Nevertheless, in 2022 the rate of inflation surged to 9.1% because of the rising costs of essential commodities such as food, energy, and gasoline.[2] When the cost of consumer goods increased, retirees may have had to modify the amount they withdrew from their retirement accounts to maintain their standard of living. They may have had to dip into savings to cover the expenses of their immediate needs. If you took any of these measures to account for inflation, it is important to examine your financial position as these changes could influence your short-term and long-term retirement goals.

Interest Rate Hikes Hit Retirement Accounts

To tackle the issue of high inflation, the Federal Reserve has taken the action of upping the cost of credit six times in the current year. This raised the apprehension of an economic downturn, which resulted in many investors withdrawing from the stock exchange, leading to a decrease in the worth of both stocks and bonds. If you are like most people, you have some of those stocks and bonds affected in your IRAs, 401(k)s, and other retirement accounts, you may have even been using the failing 60/40 portfolio. This year, the value of an average 401(k) has plunged by 25% and the value of pension funds has gone down by 15%.[3] The value of retirement assets declined as a result of the market downturn, causing retirees who were cashing out to receive less than what they were expecting, and in some cases, even taking a loss. Furthermore, with inflation being high, the returns from retirement plans and investments slowed. This had a large impact on recent retirees, as taking out money from a shrinking fund increases the chances of early depletion.[4]

Apart from affecting your retirement funds now, these factors could also alter your outlook on your future. Some may be concerned that they may not have what they need to avoid outliving their savings in retirement. Others may not know how best to adjust for inflation or what further strategies to employ to enable a comfortable retired life. These concerns are best raised with a financial professional. Talk to us today to receive guidance that empowers you to get into 2023 with a solid financial plan.

Hilltop Wealth Solutions (“Hilltop”) is a registered investment advisor with the Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure and Client Relationship Summary (Form CRS) for additional information regarding the qualifications and business practices of Hilltop. Hilltop Wealth Solutions, LLC is an SEC Registered Investment Adviser firm. Hilltop Tax Solutions, LLC, is an affiliate of Hilltop. Wealth Solutions that provides tax and bookkeeping services.

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