Retirement on hold for some
Inflation, market slide have many Americans rethinking planned exit from workforce
Americans on the cusp of retiring are facing a tough choice as they watch their nest eggs shrink: stay the course or keep working.
A stock market slump this year has taken a big bite out of investors’ portfolios, including retirement plans like 401(k)s. The S&P 500, the benchmark for many index funds, is down about 17% since its all-time high in early January.
The sharp reversal after a banner 2021 for Wall Street has been particularly unsettling for those who have been planning to retire sooner rather than later, and banking on a healthier stock portfolio to help fund their post-work lifestyle.
It doesn’t help that the cost of everything from gasoline to food is up sharply amid the highest inflation since the 1970s. And that the Federal Reserve’s recipe for fighting inflation — hiking interest rates — has heightened fears the U.S. economy will slide into a recession. All of that is bad news for corporate earnings growth, which is a key driver of stock prices.
The market skid has financial planners hearing more often from anxious clients seeking advice and reassurance in equal measure. They say some clients are opting to push back their retirement date in hopes that will buy time for their investments to bounce back. Meanwhile, retirees already tapping their investments may have to consider beefing up their savings with a part-time job or putting off major travel or spending plans.
“From late 2020 through 2021 we saw a wave of clients retire because of the large gains in the stock market and because they no longer wanted to work in the COVID ‘new normal’ work environment,” said Mark Rylance, a financial planner in Newport Beach, California.
This year, half the clients who discussed retirement opted to still retire, while the other half decided to hold off, he said.
Historically, the stock market has tended to deliver positive returns within a year following steep declines. But unlike younger investors who can ride out Wall Street’s sharp swings, workers closing in on retirement don’t have as much time to make up losses from hefty market downturns.
“I am a little afraid — I don’t want to work until I’m 70,” said Nancy Roberts, 60, a librarian in Meridian, Idaho.
Many soon-to-be retirees are also terrified about inflation, which can be “devastating” over decades, said Mark Struthers, a financial adviser with Sona Wealth Advisers in St. Paul, Minneapolis.
Social Security has a built-in inflation adjustment, but it doesn’t keep up with real inflation, and pensions — which far fewer workers have these days — often max out the inflation adjustment at 1.5%, he said.
“Compounding is magical when it is working for you, but devastating when it’s working against you,” Struthers said.
He advises retirees who are worried about getting by on their savings to be willing to cut back on spending on big-ticket items. That could mean waiting 10 years rather than seven to buy a new car. He also recommends that retirees work part-time.
Despite the market’s decline, investors like Mark Bendell, 62, of Boca Raton, Florida, are sticking to their retirement timeline. The engineer decided early in 2021 that he would retire before the end of this year.
Not that watching the market plunge hasn’t been difficult. “I have a stiff drink about a couple of times a week and then I take a look at my investments,” Bendell said.