Today, retirement is filled with challenges for many people. Inflation and Market Volatility take the forefront. Some perceive it as a temporary hurdle in their retirement journey, accepting it as it is. For many, it can be the most challenging time in their life. A quote attributed to the philosopher George Santayana is well-known to many: “Those who do not learn from history are doomed to repeat it.” While similar sentiments have been expressed by presidents and figures like Winston Churchill, the wisdom it imparts remains invaluable.
What have we learned about inflation? Most retirees today must go back to the ’70s to see real inflation. I remember the long gas lines, my parents complaining about the price of groceries, and the challenge of living within a budget due to high-interest rates. There was also a period of great market decline. It was not as significant as the market correction in the early 2000s, but it did give us some perspective. How did these people survive these difficult times? The reality is that they lived in very different times. During the introduction of defined contribution plans like 401(k)s, alongside corporate pensions and Social Security, household debt was minimal, providing income for retirees. That alone was a significant difference. Due to consistent income, they only had to manage one of these risks, partly mitigated by Social Security’s cost-of-living adjustments.
The subsequent era to examine was the early 2000s, marked by market volatility. This period is dubbed the “lost decade” due to the sole instance in stock market history where there was a negative return for the entire decade. The good news is that inflation was between 1-3% instead of the 6-15% it was in the ’70s. During this period, I collaborated with numerous clients and witnessed firsthand the strain caused by relying on the market for income. Unfortunately, there were few good options for income. With low interest rates, you could not go to the bank put your money in, and get a decent return. If you had to rely on the market, that is what you had to do. Many people had to choose to go back to work or significantly reduce their standard of living. It was far from what they had envisioned.
What lessons can we learn to avoid repeating such situations? First, you must create income like the pensions provided. Having an income that can increase with inflation is essential, and the approach to achieving this varies depending on your circumstances. This income can withstand market downturns and offers a solution for inflation, potentially increasing your income. This is not a difficult thing to accomplish. First, determine your living expenses and create an income stream coordinated with Social Security, putting you in a great position to reduce the stress of the market and inflation.
To see how I can create these income plans for you, contact my office at (828) 559-0299 or email morgan.wylie@retirerm.com to schedule your free initial consultation. Let me help you avoid repeating history.