With all of the chaos this year, one area where many Americans may feel pretty good is their finances.  If you’ve been able to keep your job and didn’t sell off your stock holdings in the spring’s bear market, you may feel that you are still on track for that comfortable retirement.  Or, if you’re already retired, that you’ll continue to be in good shape.  But the economic damage that we’ve seen this year will impact nearly everyone.

In retirement planning there are a number of important variables that we use to model out a retirement income.  We need to make assumptions about future investment returns, taxes and inflation.  Unfortunately all three may be headed in the wrong direction and could work together to significantly change the retirement income for most of today’s retirees and near-retirees.

Our latest print newsletter, On the Money, was mailed a couple weeks ago.  If you got a chance to read it, you learned more about two of our serious concerns for retirees and our clients nearing retirement age.

The first is investment returns which are likely to be well below average in the coming several years.  Bond yields are near record lows and stock valuations are high.

The second factor that we also covered in the newsletter is inflation which hasn’t been a serious issue in the past three decades but could come back to levels that would gradually reduce the purchasing power of retirees.  Recently the Federal Reserve announced that they will be less vigilant about keeping prices in check in favor of supporting job growth and an economic rebound.

And the third is the prospect of higher taxes which will be needed regardless of the outcome of the November elections.

In our On the Money newsletter we explained more in the articles “The Cost of Inflation” and “Lower Returns Ahead?”  You can access the online version here.  Back in May we discussed the prospect of higher taxes in a blog post, COVID-19 and Taxes.

As we regularly prepare and update our client’s retirement plans, we periodically adjust our assumptions about future investment returns and inflation.  Today our assumptions are for the lowest inflation adjusted investment returns that we’ve ever used and we’ve been doing this for over 35 years.  If you’d like to see how these factors may impact your retirement income plans, please contact us for a complimentary meeting, either virtually or in person.