Our current economic situation is complex and, in some ways, unprecedented. Because of the pandemic, we have seen massive changes in how the market behaves, and we are having to readjust how we approach retirement planning.
Government Payouts
One of the major changes that we saw during the pandemic was the government directly stepping in to help with the economic downturn. The issue with this is that federal payouts can increase inflation, and when that is coupled with the constant creep of normal inflation, the situation can get out of hand quickly.[1] Suddenly the everyday cost of things increases rapidly (which you may have noticed while paying for groceries or gas).
Changes in the Global Economy
For many years the world has been growing economically. Because our ability to travel and move goods is significantly more efficient than it was in the past, the world saw a massive expansion in industry as companies spread their operations throughout the globe.[2] We were, for a long time, in a period where economic growth was constantly rising because of this spread. Now, however, we are seeing a decline. We are seeing nations move away from an open-door policy when it comes to industry. This is a concern because there are certain nations like China, which produce a large amount of the world’s goods, and if China stops trading with other nations, the effect on the world economy (and our economy by extension) could be quite bad.[3]
Changes in the Workforce
Since the pandemic, the workforce of the country has not fully recovered. Wage increases are not keeping up with inflation, so even if you see a yearly raise, it may not have increased your purchasing power. This is a concern because if workers don’t feel like they are making enough money, they likely won’t stimulate the economy by spending money on things they want.[4]
What This Means for You
The economy is in an uncertain place right now. Inflation, in particular, is a big concern for retirees and pre-retirees because it affects how much mileage you will get out of your saved money. An uncertain economy also means that your investments need to be made carefully, with an eye on all the current factors influencing the market.
