2022 was a difficult year for American retirees and those who are saving for the future. Various factors combined to reduce the amount of disposable income that Americans have to put into their retirement accounts, and a sluggish economy caused the stock market to plummet from the record highs it reached at the beginning of the year. These economic issues have sapped the value of retirement accounts, meaning retirees have to tighten their spending habits while other retirement investors are forced to delay their retirement plans. The team at Crash Proof Retirement® analyzed the biggest challenges facing Americans in or near retirement in 2022 and have some tips on how to protect their investments during uncertain times.
Record High Inflation
Inflation skyrocketed in 2022, reaching 9.1 percent in June – its highest level in 40 years. Factors like resource scarcity in the post-COVID pandemic environment, high energy prices, and the war in Ukraine raised the price of goods and services across the board. Although the Consumer Price Index report released on December 13th seemed to show that inflation was trending downward, the news was not as good as many were led to believe. While economists may try and convince the public that inflation is easing, those in or near retirement are still spending more on the things they need every day.
Negative GDP Growth in the First Half of the Year
By a strict definition – two consecutive quarters of negative GDP growth – the U.S. economy entered a recession during the summer of 2022, even if many experts were unwilling to call it as such. While third-quarter GDP reports published by the Bureau of Economic Affairs showed growth of 2.6%, that number will not be finalized until December 22nd and could come down when data is revised. The Atlanta Federal Reserve’s estimates for fourth-quarter GDP growth were optimistic one month ago but has since been revised lower with the end of the year quickly approaching. A less-than-stellar GDP report for the fourth quarter of 2022 could be enough to make investors nervous, potentially leading to more stock market declines in 2023.
Weak Stock Market Performance
As the U.S. economy attempted to recover following the COVID-19 pandemic, the stock market reached record highs in 2021 and 2022. In 2022, high energy prices, the war in Ukraine, and a number of other factors erased several years of gains. This was bad news for retirement savers and retirees, who all lost significant value in their securities-based investments. Because investment vehicles like stocks, bonds, and mutual funds are directly tied to stock market performance, anyone invested in those vehicles lost huge sums in 2022, and those same investors are poised to lose even more if the stock market falters heading into the new year.
Interest Rate Hikes
While the Federal Reserve instituted a series of interest rate hikes to combat rampant inflation, their actions proved to be a double-edged sword. Tightening access to credit made it more expensive to borrow money for big-ticket items like homes and cars, while making existing debt more costly to finance. That was one of the major factors impacting stock market performance in 2022, and although some Fed officials and economists have called for a pause on interest rate hikes, rates are expected to rise another 75 basis points in 2023 before settling at 5.1% — but given the Federal Reserve’s track record so far, interest rates could rise much higher. As the Fed continues to raise interest rates for consumers, it will most certainly have a negative impact on the stock market’s performance.
Experts Predict Recession in 2023
Although the United States economy met the strict definition of a recession during the summer months, an increasing number of experts believe a “real recession” will occur in the next year. Boston Federal Reserve President Eric Rosengren said he believes a recession is “quite likely” in 2023, and a survey conducted by professional services firm KPMG showed that 86% of CEOs believe there will be a recession within the next year. These are just a few of the experts who have expressed concern about the state of the economy going into the new year, so smart investors will be looking for security, especially if they are retired or plan to retire in 2023.
With the U.S. economy currently on shaky ground and facing significant challenges in the future, it makes sense to seek out investments that will keep your nest egg safe no matter how the stock market performs. That means finding investment vehicles that exist outside the risky securities industry. At Crash Proof Retirement®, we educate consumers every day about revolutionary investment vehicles that are based in the financial life insurance industry. We call them Crash Proof Vehicles, and they are guaranteed to protect your principal investment from being lost during a market crash while still allowing you to credit interest at rates comparable to securities-based investments. If you are interested in securing your investments, you owe it to yourself to speak to the licensed retirement educators at Crash Proof Retirement®. Our team can tell you more about how Crash Proof Vehicles can fit into your investment strategy so you can develop the best retirement plan in Montgomery County, PA and in other communities around the country. Call 1-800-722-9728 to schedule your complimentary financial checkup today or visit crashproofretirement.com.