According to a survey of 401(k) participants by Schwab Retirement Plan Services in 2019, respondents believed that they need $1.7 million, on average, to retire – with many saying they are not on track to get there.
Now, let’s say you have a 401(k) and you finally arrive at the finish line and retire with what you think is enough to retire with – $1.7 million.
Now, what if you check your account balance and find out you only have a balance of $850,000? Half of the account is gone, and your plan administrator says there’s nothing you can do about it. There’s no way to trace where the money went, and you’re just going to have to live with it. What would be your response? Panic? Shock? Horror? Probably all of the above.
Most of you are saying there’s no way half a 401(k) account could disappear into thin air. But what if I told you there’s an invisible killer gaining momentum right now, and by the time some people retire in the near future, that is what will happen to their accounts if this killer continues on its rampage?
If things don’t change, your retirement account could be worth 30, 40, 50% less than they are now, and there’s nothing you can do about it.
The effect inflation has on retirement accounts and on any type of savings for that matter can be devastating, and it’s like money disappearing from your retirement accounts. If prices rise by 30, 40, 50%, or more, your buying power goes down proportionately. If prices double, your retirement account will lose half its value.
Much of the public and investors are currently too caught up in the meme stock and crypto frenzies to pay attention to the alarms being sounded over inflation, but those alarms are getting louder and louder.
Just last week, billionaire hedge fund manager Paul Tudor Jones predicted inflation is here to stay, posing a major threat to the U.S. markets and economy – adding that it is “probably the single biggest threat to certain financial markets and I think to society just in general.”
We probably know how we all got here. There’s only one direction for prices to go when trillions of dollars in stimulus money are pumped into the economy, burning a hole in people’s pockets – and that is UP. Money in consumers’ pockets means increased demand for everything from stocks to crypto to goods and services. With much of that stimulus money still on the sidelines and ready to be spent, inflation could be here to stay for years.
While inflation has been rising, have you noticed what else has been getting attention for price increases? Home prices? Rents? By the time we ring in the New Year, U.S. median home prices will have risen 14% compared to last year. As of August, the national median rent had already increased by 11.4% so far in 2021.
So imagine, instead of your money parked in a savings account or 401(k) getting chipped away by inflation, why not park your money in something rising with inflation?
Investing in assets like cash-flowing real estate or other goods or services considered essential is the one sure way to cushion the impact of inflation on your retirement – or in some cases, even thrive.
The investors who survive inflation will be the ones who are proactive. Investors who sit back and let inflation happen to them will be the ones unprepared for retirement, just like investors who were sitting back in 2008 and getting ready to retire – only to see their 401(k)’s cut in half by the Financial Crisis.
Now would be a good time to review your portfolio carefully. Analyze your investments with a fine-tooth comb and ask yourself if any of your current asset allocations are poised to profit from inflation. Or will you be like most Americans with money tied up in the stock market that has historically gone in the opposite direction of inflation?
Do you have any investments poised to leverage inflation?
If not, message me today to learn how I plan to profit from these times when everyone else is uncertain or scared.
