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Inflation Concerns for Retirement Plan Participants

401k Plan Fees

Inflation concerns are driving participant thoughts around retirement plan investments.  With inflation steadily rising – the most recent monthly year-over-year inflation number came in at 6.2% – retirement plan participants are understandably anxious.  Many are asking, what does increasing inflation mean for their future retirement savings?

Forbes Senior Contributor Chris Carosa tackled this question in a recent article.  Interestingly, participants aren’t overly concerned about retirement plan and investment fees, since fee disclosures have gotten better in recent years.  Also, participants either don’t know or don’t think about fees related to their retirement accounts.

Inflation concerns however, are another matter.  Retirement savers are acutely aware that inflation spells potentially bad things for their savings, today and tomorrow.  Specifically, inflation concerns force them to have to work longer.  Participants also worry, if they’ll be able to retire when they want to.  As well, they worry about outliving their money!

As Mr. Carosa aptly noted, “Inflation is not just a future worry.  It leads to present day issues that can result in a change in retirement saving behavior.  This, in turn, puts savers in a difficult position.”  One imminent challenge for participants is striking a balance between the rising cost of living today with saving for retirement.  In many ways, the same advice still applies:  Save as much as you can for as long as you can, and take advantage of employer matching contributions when available.  Plan design features such as auto enrollment and auto escalation are also methods by which employers can encourage improved savings behaviors.

Another question retirement plan participants are grappling with is – How bad might the stock market crash be whenever it does occur?  Because at this point, it seems as though it is not a matter of if, but when.  The prevailing advice among the experts Mr. Carosa interviewed for his Forbes article, is that participants should be thinking about this and positioning their portfolios defensively.  In other words, now is not the time for participants to be totally exiting the stock markets en masse.  Markets rise and fall, and it’s normal for them to do so.

So it’s a good time to remind participants to stay the course with their investment strategies, because timing the market is not a dependable strategy or prudent.  Instead, participants should position their accounts with adequate risk to continue to achieve some growth in the short term, but not so much that they can’t stomach a severe downturn.  It may also be a good time to encourage participants to engage in a financial wellness program, if offered, and/or seek advice from a financial professional, either your plan’s advisor (if applicable) or one of their choosing.  Inflation concerns are real, yet the timing and magnitude are not.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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