What Are the Key Threats Facing Retirees and Future Retirees?

What are the key threats facing retirees is an important topic addressed by retirement-finance expert Bob Carlson in a recent interview.

Inflation is one threat that is eroding the value of retirement savings. On top of that, Carlson said he is looking at potentially lower returns in stocks and bonds, amid rising interest rates.

Indeed, interest rates hit their low point during the pandemic and do not seem likely to return to those levels get back down to there and that’s going to reduce returns on both stocks and bonds.

“After decades of steadily falling inflation, where we get to the point that inflation was under 2% for an extended period of time, inflation is suddenly back at the highest level in 40 years, and I think it’s going to be difficult to wring a lot of that inflation out of the economy,” Carlson said. “So, I think inflation going forward is going to be higher than that 2% or so we’ve gotten used to in the last couple of decades.”

One thing Carlson said he has learned  in more than 30 years researching and advising about retirement matters is that much has changed and,  in recent years, they’ve been changing at a faster pace.

What Are the Key Threats Facing Retirees Heading into Mid-2020s?

“I think there are some changes coming down the road that are going to be very different from the way things have been in the past, and it’s looking to me like the mid-2020s are likely to be one of the most difficult periods to be approaching retirement or in the early years of retirement,” Carlson said. “The economy and financial markets have been pretty favorable to retirees for about the last 40 years since the big bull market in stocks started in 1982. And a number of other trends were put in place, but most of those positive trends are  peaking or they’re reversing. And I think that’s going to adversely affect many people in retirement, particularly those around that key period of five years before retirement or five years after retirement.”

Also, Stocks have benefited quite a bit from several global trends that have peaked or reversed. For example, labor costs and labor cost increases had been quite modest for a couple of decades,. but a labor shortage doesn’t look likely to go away, Carlson said. Wages have been going up much faster than they had in the past the last couple of years, he added.

“I think that’s going to continue and that’s going to hit business profits,” Carlson said. “Also, some favorable trends on regulations and taxes are going to be reversed or have already started to reverse”.

Expert Identifies What Are the Key Threats Facing Retirees

“Free trade and globalization are being reversed or reduced,” Carlson said. “Those were big aids to businesses, they helped increase profit margins and earnings. So, that’s going to hurt as well. Also, there are antitrust issues that prevent businesses from concentrating. So, there’s going to be much higher antitrust enforcement, inventory management and supply chain issues. These are all things that are going to hurt.”Business profits and margins have been at record levels the last few years, and stock prices anticipate that continuing, Carlson commented. He continued that stocks are unlikely to remain at the high valuations they’ve had recently.

All that is coming together, so anticipate lower returns from stocks and bonds than in the past, Carlson said.

On top of all these, Social Security is not in good fiscal shape due to its trust fund, which is going to run out of money in 2034, or perhaps earlier, Carlson said. — Medicare’s Trust Fund for Part A is running out of money in the next few years, he added.

What Are the Key Threats Facing Retirees? Demographics

“There are other trends that are going to be very negative for retirees,” Carlson said. “One, in particular, is demographics. We have an aging population. And that tends to reduce the rate of growth of the economy and, on top of that, for retirees the bubble period of the baby boomers is nearing its peak.”

The largest number of baby boomers were born just about 65 years ago, Carlson continued. For the past few years, beginning in 2011, about 10,000 Baby Boomers per day turned 65. That’s going to go up to 12,000 starting in 2024, so it will put more demand on the goods and services depended upon by retirees and people approaching retirement.

That is going to reduce supply and increase costs, Carlson predicted. In general, it’s going to make it more difficult to be a retiree or especially an early retiree.

”The next few years, beginning in the mid-2020s, are going to be perhaps the most difficult time to be in the early years of retirement or approaching retirement, Carlson said. All these factors coming together are going to make it much harder to maintain  financial security and independence in retirement, he added

Prepare for and Respond to Threats

People need to rev up their retirement planning, Carlson conveyed. In the last couple of decades, people have been able to cover up many retirement planning mistakes with high stock market returns.

“I don’t anticipate that being an option going forward,” Carlson said. “You can’t depend on investment returns to bail out the other parts of the retirement plan. So that’s why in Retirement Watch and in the Spotlight Series, we take a comprehensive look at people’s retirement finances. We show them how to set up their Medicare coverage so that they have very low risk of big surprise — out of pocket medical expenses. Same thing with long-term care. We show them the best ways to plan for any long-term care that might be needed in the future.”

Calson covers how to reduce income taxes, how to get guaranteed lifetime income,maximize that guaranteed lifetime income and use home equity to supplement retirement spending.

“Basically, whatever financial issue there is in retirement, we cover it in Retirement Watch,” Carlson said.

It is going to be more important going forward for people to look at all these other issues, such as non-investment issues, due to reduced investment returns and other problems in retirement, Carlson counseled. Look at the comprehensive retirement planning picture rather than focusing on just one or two issues the way most people do, he concluded.

Grace Tripathy is an editorial intern who writes for www.stockinvestor.com. Click here for learning information about Retirement Watch.