A bad year to retire – warning signals blaring amid rising inflation

 ·17 Sep 2022

The warning signals are blaring, and the gauges are flashing bright red in 2022 as key risk concerns for retirement security are coming to a head in today’s rapidly changing economic environment.

This is according to the latest Natixis Investment Managers Annual Global Retirement Index. Rising inflation is taking centre stage again for retirees after many years. Skyrocketing prices for oil, food, and shelter are eroding purchasing power and presenting a core economic lesson to those still planning for life after work, it says.

Americans are losing ground against residents of other countries in what’s shaping up globally to be “one of the worst years to retire in recent memory,” according to the retirement ranking, as reported by Bloomberg.

Income equality — where the US had the seventh-lowest ranking among the 44 countries in the index — was one of the reasons for the country’s low score, along with government debt and tax pressure, it said.

Norway was the best-positioned country on the list, rising from third last year, thanks in part to its five-year average for interest rates turning positive in 2022. It was followed by Switzerland, Iceland, Ireland and Australia in the top five. The UK ranked 19th, down one spot from the prior year.

“It’s becoming more difficult to retire almost anywhere, as high inflation, volatility in financial markets, rising interest rates and aging populations add to financial stress on pension plans and government benefits,” said Bloomberg.

Top 10 countries for global retirement security in 2022

The Global Retirement Index (GRI) is a multi-dimensional index developed by Natixis Investment Managers and CoreData Research to examine the factors driving retirement security and to provide a comparison tool for best practices in retirement policy.

Natixis ranked countries on 18 metrics that cover finances in retirement, material wellbeing, health and quality of life.

It noted that people are living longer, and with age comes an increased need for medical care. So the index considers health factors alongside finances. To ensure their finances hold up, the index considers key economic indicators that examine material wellbeing. And because retirees need to live in a clean, safe environment, the index considers quality of life.

A bad year to retire

But even while inflation is running at its highest level in 40 years, it is just one factor on a growing list of concerns, said Natixis. “Given all the potential pitfalls, 2022 could be one of the worst years to retire in recent memory.”

With markets down, rates still relatively low, and inflation taking a big bite out of retirees’ wallets, those who step out of the working world run the risk of taking retirement distributions from an already depleted pool of assets.

At the same time, it’s likely they will have to take greater risks with their portfolio to make up the ground they’ve already lost, said the retirement specialist.

“Both will make it hard to preserve retirement savings and make it harder to attain a secure retirement, but with 20 years ahead in retirement, there is still time for 2022’s retirees to reset their plans.”

Top 10 retirement planning mistakes

Inflation: an immediate threat to retirement security – Rapidly escalating costs can pose a significant threat to the financial security of retirees by eroding purchasing power. “Institutional
investors will be challenged to preserve assets in a more volatile investment environment,” said Natixis.

Interest rates and income: long-term gains, short-term pain –After a decade of historically low interest rates, central bank rate hikes hold promise for annuitizing assets in the long term, but
not without some short-term pain for individual and institutional investors alike, the group said.

Demographics: the good and bad of living longer – “For individuals, the longevity revolution will tax their income plans. For institutions, rapidly ageing populations will test the limits of both pensions and government benefits systems.”

Where retirement plans can go wrong

How much does inflation factor into retirement security? Financial professionals around the world say underestimating the impact of inflation is the number one mistake investors make in their retirement planning, according to the survey.

“Perhaps more than any other factor, it has the potential to upset the plans that have taken decades for millions of people to realize by simply eroding the value of what they’ve worked so hard to accumulate.”

Read: The 4 things threatening your retirement savings in South Africa – and how to stop them

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