Retirement planning trends are on the horizon for 2022.
Encouraging participants to save and invest for retirement is important every year. However, it may be even more important for retirement plan sponsors and committees to do so in 2022. This is due to a convergence of national and global events set to take place in the coming year.
That’s according to a recent article in Entrepreneur, which cited three key reasons why it’s vital for retirement savers to get their ducks in a row in 2022:
Reason No. 1: Inflation isn’t going anywhere.
High inflation, that is. You and your participants have likely noticed prices are going up at the gas pump and the grocery store. The producer price index, which tracks wholesale and manufacturing costs, reached record levels in 2021, according to the U.S. Bureau of Labor Statistics. Year over year, the increase hit 8.6%, the highest since 1990. The astute retirement planning action is to heed the economists predictions of higher prices persisting into 2022, and likely beyond.
Many retirement plan participants have reported that rising inflation is a concern. In addition, your participants may not be aware of anti-inflationary assets that they could include in their retirement portfolios. Financial experts agree that stock investments are typically a hedge against inflation. According to Entrepreneur, other options may include Treasury Inflation-Protected Securities (TIPS), treasury bonds that protect against inflation because their principal amount rises along with inflation; dividend stocks, which stave off inflation because they generate an income stream as a stock goes up in value; diversification; commodities; and real estate or real estate investment trusts (REITs). All of these assets may help retirement savers create a portfolio that provides a hedge against inflation in some fashion.
Reason No. 2: Rising interest rates.
The Fed may begin raising interest rates by mid-2022, if not sooner. Rising interest rates typically indicate a period of economic strength, which is generally well received by markets and investors alike, and could even create a bull market. This would drive up the price of investments, and as such, may be a good time for participants to dollar cost average into their retirement accounts to take advantage. In short, rising interest rates could bode well for retirement plan participants’ portfolios. Retirement planning becomes more predictable with higher yields on fixed income!
Reason No. 3: Economic growth could slow.
In the first two quarters of 2021, GDP grew by 6.4% and 6.7% on annualized basis, respectively. However, that growth was hindered in the third quarter by lowered consumer spending and supply chain bottlenecks. Rising inflation, supply chain disruptions and the labor shortage didn’t help. A robust retirement portfolio could benefit workers in the event of a job loss – particularly for employees with outside investments independent of their workplace retirement plan.
These three trends are likely to shape retirement planning and investing in 2022 and beyond. It’s important for you and your participants to be aware of these trends, and plan for them accordingly. Consider educating your participants about the economic concerns 2022 may have in store – without creating panic – and offering helpful solutions so they can position themselves and their retirement accounts appropriately in the coming year and for many years to come.