With both health and economic challenges having shaped 2021, those saving for retirement in 2022 will face important obstacles, such as managing a retirement savings gap, battling rising inflation and becoming informed enough to make quick investment decisions to potentially boost returns. Here’s what you need to know about these 2022 retirement investment trends and how to stay ahead of potential roadblocks.
Mind the (Savings) Gap
The 2020 CARES (Coronavirus Aid, Relief and Economic Security) Act allowed individuals facing financial hardships to withdraw money from their retirement plans (401(k)s, IRAs), penalty-free. The problem is that very few repaid the funds. The missing money leaves a gap between what you will have saved by the time you retire and what you’re projected to need during retirement.
For example, if you will have saved $90,000 by the time you retire, yet retirement planning tools suggest you need $100,000 to live comfortably, that missing $10,000 you borrowed creates a savings gap. That missing amount is money that could’ve been compounding interest to make you more money over the years.
To reduce the gap, you should adjust your budget to allow for increased retirement plan contributions. Working longer — and saving longer — may also help.
It’s hard not to notice the rising cost of food and goods. The effects of inflation — expected to last into 2022 — will impact retirement savings accounts through lower returns on investments. Experts say to combat a lower return, you should place a heavier focus on saving more and/or working longer to compensate for the fluctuation in return on investment.
But even when returns take a dip, don’t panic. Remember, the goal with retirement savings is to focus on the long-term. You may not want to pull your money out of a plan at the first sign of trouble. Historically, market lows have eventually returned to market highs. Be prepared to ride the wave.
Increase Your Financial Knowledge
Riding the wave doesn’t necessarily mean you have to be a passive investor. Learning a few strategies may help you do a better job of actively managing your investments, allowing you to quickly take advantage of potential market highs.
One option: Consider monitoring market changes and investor data. This way you’ll know if you need to quickly pivot to improve your financial outlook. The more you know about your money, the more you’ll know what to do with it. However, if you’re close to retirement and you can’t reduce the savings gap and you’re not able to take advantage of potentially high-risk-high-reward strategies, focus on reducing your retirement living outlook. Basically, find ways to live off less retirement income each month.
Talk to a Professional
We can help adjust your financial plan based on these retirement planning trends in 2022. Contact a Farm Bureau financial advisor.