Is the bull market coming to an end? What retirees should do to prepare

In 2022, the S&P 500 had its worst first half in five decades. With the tailwind that supported the global economy during the recovery from the pandemic gone, those saving for retirement need to take several steps to weather falling stock and bond yields, including adding more assets to their portfolios, T said. growth oriented. Rowe Price forecast for the US pension market for 2022.

A financial advisor can help you plan for your future, including saving for your retirement. Find a local consultant today.

Why Investors Can Expect Lower Returns

Despite the economic turmoil caused by the COVID-19 pandemic, the stock market has risen to new highs in 2021 after a massive sell-off in March 2020. distribution and growth of economic activity.

The recent rise in the stock market followed the longest bull market in history, which lasted from 2009 to 2020. Since 2009, the S&P 500 has shown only one losing year in total returns (2018). In fact, the index has shown a total annual return of over 15% over seven of those 12 years. The index, which tracks the performance of 500 large public companies, is up more than 25% in 2021.

But the Fall 2021 T. Rowe Price report warns of less robust returns.

“We believe that medium-term returns will be lower than in previous periods, and in some cases significantly lower. This has serious implications for pension plans and those who benefit from them,” the firm said in a report.

The financial services firm first pointed to fixed-income markets and the near-historically low interest rates currently being raised by the Federal Reserve. This is a trend that the firm expected to continue. In equity markets, “we expect returns in many large markets such as the US to be limited compared to recent history,” he added. “While valuations vary across asset classes and some assets are attractively valued, most assets are overvalued for these metrics.”

The story goes on

Finally, T. Rowe Price pointed to several risks facing the markets, including inflation, which hit a 40-year high in June 2022. While fiscal stimulus, income growth and economic activity have helped accelerate the recovery from the pandemic, inflationary fears were clear. at the end of 2021. For example, in October 2021, the consumer price index for all urban consumers rose 6.2% from 12 months earlier, the biggest increase since 1990.

The risks go beyond the US markets. The T. Rowe Price report notes that China is facing supply chain disruptions and rising commodity prices. In other countries, virus mutations and problems with vaccine introduction may also hinder investment returns.

“While the global economy has been supported by a period of extraordinary liquidity driven by fiscal and monetary stimulus, these tailwinds are likely to fade as central banks begin to more moderate policies,” the report says. “While these conditions may not materialize as significant growth deterrents, we believe they contribute to a less attractive risk-reward ratio going forward. Retirement investors will need to take the appropriate stance.”

How do retirees respond?

Investors who save money for retirement have three options to deal with lower-than-expected future returns:

Save more or delay retirement: T. Rowe Price admits that this may be the “least attractive” option, but saving more or simply postponing retirement can help offset lower returns. By postponing retirement, a person can reduce the number of years they need retirement income. Postponing retirement and working longer hours may also allow a person to apply for Social Security later. Deferring Social Security payments after full retirement age will result in greater benefits.

Acquire more growth-seeking assets: The second option could mean increasing the composition of the portfolio’s capital or introducing fixed income securities that offer higher returns. This could lead to more risk, T. Rowe Price said, but a growth-focused due date fund could be a good option for this, especially for investors whose retirement is yet to come.

Limit your retirement spending: The third and final option is to limit pension spending. “T. An analysis of the consumption habits of retirees conducted by Rowe Price shows that retirees tend to adjust their spending in line with their income,” the report says. “Most retirees who adjust their spending have the funds and flexibility to do so. However, the poorest households cannot spend less.”

bottom line

As the US and other countries continue to navigate high inflation and economic slowdowns, T. Rowe Price warns that investors should expect lower returns. To limit the impact of lower investment returns, those planning to retire can simply save more or delay their retirement. They can also add more growth assets to their portfolios or adjust their spending habits after retirement.

Retirement Planning Tips

• Do you know how much you need to save for retirement? The SmartAsset Retirement Calculator can help you estimate the amount of savings you will need to fund your retirement lifestyle.

• A financial advisor can help you invest your retirement savings and create a tax-efficient withdrawal plan. Finding a qualified financial advisor is not difficult. The free SmartAsset tool matches you with up to three financial advisors who serve your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find a consultant to help you reach your financial goals, start now.

Photo Credit: ©iStock.com/Kameleon007, ©iStock.com/PeopleImages, ©iStock.com/FG Trade

Message Is the bull market coming to an end? The article “What Retirement Savings Should Prepare for” first appeared on the SmartAsset blog.