The Inflation Conundrum: Important Insights for Employees of American Family Employees

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'Inflationary pressures continue to push American Family employees to review and adjust their Retirement accounts - an advisor like Michael Corgiat at The Retirement Group can help navigate these waters,' he said.

American Family employees need to diversify their investments and beef up their emergency funds to weather the inflationary storm, and Brent Wolf at the Retirement Group can help them prepare for the pain ahead.

In this article:

1. Current inflationary landscape and long term effects on economy.

2. How American Family employees can plan for inflation.

3. Inflation impact on retirees and how to protect retirement savings

Inflation and the Long Term Economic Impact.

In 2022, inflation has dropped to 9.1%, and consumer economic sentiment has moved positively. Still, the financial conflict affects many people.

A study in June 2023 illustrates this concern. An incredible 61% of Americans said they live paycheck to paycheck. Similar numbers also show 65 percent of those earning between USD 50,000 and USD 100,000 and 45 percent of those earning more than USD 100,000 live paycheck to paycheck.

The Current Inflationary Landscape.

Collin Crownover, PhD, research analyst with Fidelity's Asset Allocation Research Team, discusses inflation right now. The past two decades have seen inflation just below 2%. But projections show that could rise to 2.5% to 3% in the next decades.

A closer look predicts that living costs will probably keep rising. Current inflationary pressures reflect persistent demand. This contrasts with the initial inflationary spike attributed to global supply chain issues.

Crownover says supply-related inflation can reverse - as evidenced by falling used car prices after the chip shortage ended - but current inflation is demand-driven. Notably, because of the gap between labor supply and job openings, wages are catching up with - and sometimes exceeding - inflation.

Think about service providers like physicians and barbers. Its biggest expenses are the salary of the professionals. No one will take a reduction after wage increases, suggesting such sectors may have grown accustomed to high prices.

Inflation has moved on in recent years and American Family employees must adjust to the new environment. Ephemeral variables shaped the previous years' price increases. It appears that current inflation forces are more durable. The Federal Reserve also wants moderate wage growth without job losses. Ladder cuts aren't a big problem and inflation is down, but the upside of those positive shifts is unclear. A good portion of that deflation is caused by dropping oil prices following the Russian invasion of Ukraine. But that trend could soon reverse.

Understanding inflation is important for American Family employees nearing or starting retirement. Persistent inflation could increase longevity risk for retirees, according to a report from the Center for Retirement Research at Boston College in August 2021. People who do not have retirement savings growing at a rate approaching or above inflation may outlive their money. Consideration must be paid to reviewing retirement portfolios in light of recent inflationary trends to see how they can best prepare for the inevitable erosion by rising costs over time.

The fluctuating commodity prices and established wage increases could make meeting the Federal Reserve's inflation objectives difficult for American Family employees. Inflation has fallen as commodity prices have dropped recently. The course of these prices is nevertheless uncertain, and so is the course of inflation.

Navigating the Economic Terrain

American Family employees should focus on controllable things like spending patterns, savings, earnings and investment strategies.

Five concrete steps to take:

Rationalize Spending:

Watch how you spend - especially on credit cards. Always look for the best price and look for savings. One easy starting point might be assessing the utility of several subscriptions - especially those underutilized.

Augment Income:

Explore other revenue streams. Diversifying income sources may provide some cushion.

Strengthen Your Emergency Fund:

You should save enough for three or six months of expenses. Start with USD 1,000 or a month's essential expenses for American Family employees intimidated by the task.

Optimize Your Cash:

With rising yields on money market funds, certificates of deposit and bonds; the excess cash may be a good place to make income.

Invest with a Vision of Growth:

Inflation weakens purchasing power. Your financial condition should be preserved by investing in assets that outpace inflation. For those with a long-term investment horizon, a balance is necessary. Conservative investments seem less volatile but become more risky as inflation rises. The necessary inflation hedge can come from diversifying into real assets like stocks, commodities and real estate.

Having professional advice can be invaluable for American Family employees unsure of how to build an investment strategy and how to navigate the market complexities.

Navigating inflation's shifting tides is like sailing a ship through changing currents. Some decades ago our ship passed through calm waters with inflation at about 2%. With storm clouds forming, the currents are stronger due to persistent demand rather than transient supply issues. Retirees and those approaching retirement need to adjust their strategies to keep their financial vessel afloat and on course, as a seasoned commander adjusts to new seas by consulting maps and instruments. American Family employees might sail safer and more profitably if they know historical trends, future projections and current actionable steps.

Added Fact:

Concerning the inflation conundrum: Many retirees underestimate the effect of inflation on their retirement savings. Healthcare costs have been rising faster than general inflation in 2022 and increase with age, according to the U.S. Bureau of Labor Statistics (2022). This means that as retirees age, healthcare costs can take a larger share of a budget, making proactive financial planning and investment strategies necessary to ward off inflation.

Added Analogy:

Navigating inflation as a retiree or someone nearing retirement is like sailing a ship in changing seas. Previous trips were relatively smooth, inflation tides hovered around 2%. But now, it seems like the winds are veering, and the currents of inflation are stronger—because of prolonged demand rather than temporary supply disruptions. So just as a seasoned captain adjusts course to avoid dangerous waters and uses navigation tools and maps, American Family employees must adjust their financial plans to keep their retirement ship afloat. Knowing historical trends, current economic conditions and taking proactive steps like diversified investments and optimizing savings can help them navigate a safer route into retirement.

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Sources:

1. Aubry, Jean-Pierre, and Laura D. Quinby.  How Does Inflation Impact Near Retirees and Retirees?  Center for Retirement Research at Boston College, 4 June 2024,  crr.bc.edu .

2. Arnott, Amy C., CFA.  Why Inflation Is Still a Problem for Today’s Retirees.  Morningstar, 9 July 2024,  morningstar.com .

3. Johnson, Robert R., PhD, CFA, CAIA.  How Will Inflation Impact Your 2023 COLA Increase?  Forbes, 28 Dec. 2022,  forbes.com .

4. Rappaport, Anna M.  Impact of Inflation on Retirees.  Society of Actuaries, 2023,  soa.org .

5. Vernon, Steve.  What Is Inflation Risk and How Can It Affect Your Retirement?  Forbes, 28 Dec. 2023,  forbes.com .