3 emerging financial threats to retirement planning in 2024

By Aaron Cirksena

Effective retirement planning pays close attention to the client’s unique needs. It considers every nuance of the client's lifestyle and the lifestyle they seek in retirement.

However, retirement planning must also consider the general factors that affect every retiree. When major events unfold in the economic landscape, retirement advisors must consider how those events affect all of their clients and make the adjustments needed to keep investments on track.

For today’s advisors, there are three emerging financial threats that should be carefully considered as part of retirement planning.

Increased inflation

Fluctuations in inflation rates make retirement planning a bit like hitting a moving target. Retirement strategies seek to accumulate enough value to finance a specific lifestyle. When inflation threatens to increase the costs of that lifestyle, strategies must be adjusted to avoid a reduction in purchasing power.

The COVID-19 pandemic had a sizable impact on average inflation rates, prompting an increase from 1.2% in 2020 to 4.7% in 2021 to 8% in 2022. In 2023, rates began to decline, averaging 4.1% for the year. The most recent reports put the annual inflation rate for 2024 at 2.5%, yet they indicate that consumer prices remain 21.2% higher than they were pre-pandemic.

Retirement planners can help offset the negative impact of increased inflation by focusing on investments that have historically kept pace with our outperformed inflation. They should also ensure clients stay engaged with retirement planning. A set-it-and-forget-it approach can result in investments losing significant ground if emerging trends turn into long-term conditions.

Market instability

A certain degree of volatility should always be expected in the stock market. However, sharp swings can lead to big issues if they are not addressed.

Media reports have used words like “turmoil,” “chaos,” and “wild swings” to describe recent market instability. Some have speculated that the recent activity could point to a recession before the end of 2024. Retirement planners who believe the reporting to be valid should definitely take steps to ensure their clients’ portfolios are positioned to weather the storm.

Retirement planners can help to increase resilience during times of extreme market instability by building flexibility into retirement strategies. Diversified portfolios are a crucial element of flexibility. Dollar-cost averaging is another approach that can help to mitigate the impact of instability.

Outlive retirement funds

Although increases in life expectancy are generally thought of as positive, they introduce a wrinkle into retirement planning. Strategies are typically fine-tuned to provide retirement income for a certain number of years. If retirees live longer than anticipated, retirement resources can run out.

A recent survey found that outliving retirement savings is a significant concern for Americans over 50 years of age. More than 50% of that demographic fear that what they have put away won’t be enough to fund their entire retirement.

The survey that uncovered the fear also identified some of the factors leading to the lack of sufficient funds. Failing to appreciate how life expectancy plays into retirement planning was one of the key factors. Others included the lack of adequate steps to safeguard health and claiming Social Security benefits too early. Retirement advisors can help in this area by ensuring their clients have a solid understanding of how long their retirement will last and what steps can be taken to maximize their quality of life during that time.

Although retirement planners must encourage their clients to adopt a long-term perspective on investing, they also must be careful to consider emerging economic trends and the impact they could have. Adapting strategies to account for new developments can help clients to increase their outcomes and improve their retirement experience.