What You Need to Know
- About 750,000 Americans have more than $1 million in their retirement accounts.
- Inflation is up.
- A plan can help clients make resources last.
The American workforce has experienced an influx in early retirements—so many in fact, that the surge has contributed to what is now being referred to as “The Great Resignation.” A large portion of participants in this mass exodus are individuals born between the years of 1946 and 1964, or more commonly referred to as the baby boomer generation. These 57- to 75-year-olds are retiring by the millions for a number of reasons, among which include:
- The risk of contracting coronavirus.
- A lack of attractive employment, particularly in the service industry.
- A strong stock market that has made it financially possible for early retirement.
- The rise in home values has increased net worth and borrowing power.
There are currently over 750,000 Americans with retirement accounts amounting to at least $1 million, which when compared to 2020, is a 75% increase. In 2021, the average 401(k) balance has risen 24%, and similarly, the average IRA balance rose by 21%, according to Fidelity Investments.
With the American economy growing increasingly reliant on workers over the age of 55, these scenarios may leave the remaining workforce asking, “Should I too be considering retirement?”
There are many factors that should be considered before joining this retirement wave.
Inflation is currently running at its highest rate in nearly 40 years, reaching 6.8% in November 2021. In short, retirement investments are losing purchasing power.
Another economic likelihood is that equity markets may be unable to continue the three-year streak of double-digit growth. The Federal Reserve has announced bond purchase tapering followed by up to three interest rate hikes this year. Equities generally react negatively to interest rate hikes as borrowing costs increase.
Social Security is still another issue to think about. Establishing a Social Security claiming strategy is an additional consideration that should be made when debating retirement. While the average Social Security benefit amounts to $1,500 a month, there are strategies, depending on other resources, that can enhance the amount received. Social Security currently replaces less than half of the average worker’s earnings. The Center on Budget and Policy Priorities reports that for about 1 in 4 seniors, Social Security payments provide at least 90% of their total income.
The continued low-interest-rate environment has also reduced income from certificates of deposit, money market fund, and bonds. The Federal Reserve System board found that these realities, paired with the continuous economic distortions created by coronavirus, have left 44% of current retirees questioning if their reserves are inadequate.