Retired baby boomers are wiped out by inflation and a volatile stock market: ‘It’s extremely scary’

Anita Cowles planned to take a river cruise in Europe next year, taking in the sights and sounds of vibrant cities, sprawling palaces and medieval fortresses thousands of miles from her hometown in Alabama.

She and her husband, Russell, then planned to take a three-month road trip in their new RV. Those are just two of the many trips the couple planned after Russell retired as a pilot [hotlink]US airlines[/hotlink] in February when he turned 65.

But all of that has been put on hold in part because of high gas prices, higher consumer goods prices and a market downturn that wiped out about a quarter of the couple’s retirement savings. Since February, the couple’s investments have lost about $500,000 in value, Anita, 63, tells WebMD. Fortune.

“That’s a big part of our retirement,” says Anita. “It’s very scary. We thought we would do some traveling this year, but that has come to an abrupt end. You want your money to last.”

The Cowles aren’t the only ones facing big losses: pension balances fell for the third straight quarter this year. During the third quarter, the average 401(k) balance at Fidelity fell an average of 23% from a year ago, according to recent research from Fidelity Investments, which handles approximately 35 million retirement accounts. IRA balances fell nearly 25% year over year and 403(b) accounts — retirement plans typically used by nonprofits — fell 21%.

While these dips are just paper losses until investors cash in, the psychological effects are already hitting recent and pre-retirees like the Cowles. “Yes, it’s only on paper, but if you keep drawing from that, it will take even longer to earn back your money,” says Anita.

The recent market downturn and rising inflation have made many older Americans think. According to the recent Janus 2022 Retirement Confidence Report from Janus Henderson Investors, nearly half (49%) of those over 50 say they have already reduced their spending or are planning to do so as a result of these factors.

Yet many are optimistic that inflation and falling markets are short-term challenges. According to Janus, a majority of older Americans (60%) think the S&P 500 index will be higher in a year’s time. And that follows, as baby boomers are a generation that has generally recovered well from past economic shocks, especially when compared to other generations. While baby boomers lived through the Dot Com bubble in the late 1990s and the stock market and housing crash of 2008, the generation owns about $73 billion, or about 51% of all US wealth, according to the Federal Reserve. That’s about nine times more than millennials.

“I know I can take some of those trips in a year or two because the money will come back,” says Anita. But there is still a shadow of uncertainty lurking. So in an effort to recoup some of their losses more quickly, the Cowles discussed having Russell return to work as a pilot for a smaller airline. Last week he was still applying for a role. “He’s considering going back to work, because what if it goes through?” says Anita.

“Our biggest disappointment is really just the timing of it all,” she says, adding that postponing travel and Russell may not retire are bigger decisions when there are long-term health concerns to weigh. “We’re still comfortable,” she adds, but says all the “extras” like travel and special experiences that the couple wanted to be able to do while feeling good about it financially can’t now.

How to weather the storm without retiring

While the decision to return to work, even on a part-time basis, isn’t a bad impulse, there are other ways to weather the double whammy of high inflation and a falling market that retirees and retired baby boomers are going through.

Research by T. Rowe Price shows that retirement savings hold up over the long term, even when the market enters tough and economic times. A $500,000 retirement savings in a 60/40 portfolio of stocks and bonds, for example, invested in 1973 — a year marked by an oil crisis that ushered in a bear market — still ended up with a balance of more than $1 million at the end of 30 years with a withdrawal rate of 4%.

But that kind of research doesn’t mean newly retired baby boomers (or those still in retirement) should be complacent, says Gregory Kurinec, a certified financial planner (CFP) at Bentron Financial Group, based in Illinois.

“It’s time to step back and do the things you’re supposed to do,” says Kurinec. The highest priority? Re-evaluate how much you actually spend monthly and annually. Then figure out where that income will come from given the current tough market environment.

Check out this interactive chart on

Even with that simple exercise, there are many tradeoffs to make. “The common wisdom is that you should never get out of your portfolio when it’s down,” says Marisa Rothstein, CFP and personal financial advisor at Siena Private Wealth in New York.

The natural extension of this wisdom is that pre-retirees and retirees must rely on other sources of income to get through until the market recovers – the most common source being Social Security. But if that means claiming Social Security early (full retirement age is 66 or 67 for most baby boomers), Rothstein says it could be a bad bet. “By claiming Social Security early, they are likely to forfeit the promised growth built into Social Security with each year of delay. The stock market could recover, but will it recover at a rate of 8% per year? We just can’t predict that. But we can be sure that your Social Security benefits will grow at that rate for every year you delay beyond your full retirement age. And will continue to grow until the age of 70.”

For example, Kurinec recommends that its clients build a stepping stone to retirement by saving for a year or two, rather than relying on Social Security or investment withdrawals. A balance in a savings account won’t give investors much, but by using those funds now instead of depositing them in retirement accounts, those investments have a better chance of recovering and you can wait to claim Social Security. Less chance of paper losses turning into realized losses.

“If you have a plan, you should be able to weather storms like this,” says Kurinec. “And guess what, this isn’t the last one we’re going to go through.”

Be realistic about the cost of retirement

Retirement with realistic expectations is also important. One of the biggest misconceptions about retirement is that Americans need less money in retirement than when they work. Wrong, says Kurinec.

Like the Cowles, many Americans want to travel or do all the things they couldn’t because they were working. Kurinec says recent retirees he works with typically spend 105% to 110% more than what they spent before they stopped working full-time — and that could be five or 10 years after retirement.

In the same vein, another huge stumbling block is the idea that retirees automatically fall into a lower tax bracket. Again, Kurinec says this generally doesn’t happen right away. “If we spend more money, that means we get more money in, which means we will probably end up in an equal, if not slightly higher, tax bracket,” he says. Not to mention that current US tax rates are probably the lowest many Americans will ever see.

Kurinec says that while he never tells his clients not to do something, such as taking a big trip when their portfolio is down 23%, he does emphasize the potential consequences and the need to perhaps prioritize what’s important. Compromise. To be flexible. Those principles will serve people who retreat to this environment well, he adds. “Everything is liquid. Planning is fluid – things change all the time,” he says.

In the end, however, Kurinec emphasizes the importance of a plan. “That doesn’t mean everyone has to work with a financial planner, but you do have to have some kind of plan and make sure that plan is solid,” he says.

Everyone’s definition of retirement will be different, but it will all cost different amounts, and it helps to have a good understanding of what you want to do to make that happen.

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