The economic state we are in right now is intricate and, in some ways, has never been experienced before. The coronavirus has caused massive alterations in how the market functions, and we need to change our approach to retirement planning.
Inflation
Government payouts were a prominent feature of the pandemic. However, the danger is that these payouts might cause inflation to soar, and when compounded with regular inflation, the consequences could be quite severe.[1] You have probably noticed that the cost of everyday things, such as food and fuel, has gone up significantly.
Shifts in the world economy
Throughout the years, the world economy saw an increase in development. With more sophisticated means of traveling and transporting goods, businesses started to venture into other countries, causing an increase in industry worldwide. This led to a period of rapid economic growth.[2] However, this trend is now decreasing as nations are becoming more protective of their industries and are no longer implementing an open-door policy. This is a matter of concern, as China is a major exporter of goods, and if they stop trading with other countries, it could have a disastrous effect on the world economy and our own.[3]
Shifts in the workforce
The effects of the pandemic have caused a reduction in the country's labor force. Current salary increases are not able to keep up with inflation. This means that even if a person is getting a yearly raise, it's likely that it is not actually creating more spending money for them. This is a substantial issue because if employees don't believe they are earning enough, they probably won't be spending money on consumer goods, which is vital for keeping the economy afloat.[4]
What this means for you
With the current economic situation being uncertain, retirees and pre-retirees should be aware of the impact inflation has on their savings. Due to the instability of the market, investments must be made with caution, taking all related factors into account. If you are in need of financial advice during this period of uncertainty, feel free to contact us for a free assessment of your finances.