Inflation Is Punishing Retirees, According to Schroders Study

Economists have it rough these days. Many, particularly those in academia, are spending considerable time running cover for policies that have arguably backfired. The point here is not to be a “boo bird” or “negative Nelly,” but the reality there is some evidence that economic headwinds are emerging.

Regarding inflation, that’s been a thorn in clients’ sides for several years now. That fact is confirmed by a slew of studies and surveys, many that were published this year, indicating that cost of living/inflation concerns are still top of mind for many clients. That includes retirees – perhaps the group most vulnerable to persistently high inflation. Retirees’ inflation concerns are highlighted in the Schroders 2024 US Retirement Survey.

Consider the following. Four percent of respondents said they’re “living the dream” in retirement, but the same percentage say inflation has resulted in nightmarish retirement scenarios. In a perfect world, those sentiments wouldn’t be tied. Rather, the former would significantly outpace the latter. Add to that, nearly half of those polled by Schroders said they’re current retirement situation is mediocre or that they’re really struggling.

Advisors can certainly be forces for good in clients’ retirement perspectives and outcomes, even in inflationary environments. In fact, a case can be made that one of the reasons so many folks are gloomy about their retirement outlooks is because they aren’t working with advisors.

“Highlighting the importance of a plan, most retired Americans (58%) admit they have no idea how long their savings will last, and 63% wish they had done more planning prior to retiring,” adds Schroders.

How Inflation Shapes Retirement Perspectives

Underscoring the reasons for pre-retirees and those already there to work with advisors if they’re not already doing so are the top concerns facing retired Americans.

According to Schroders, those are inflation eroding the value of assets (89%) and inflation stoking higher-than-expected healthcare costs (85%). Another 68% are worried about outliving their assets – a plausible concern at any time, but even more so when inflation is high.

“Nearly half (47%) of all retirees report their expenses in retirement are higher than they expected, and 49% believed Medicare would cover more of their healthcare expenses.  On average, retired Americans report spending 14% of their total monthly income on healthcare costs ranging from insurance premiums, out-of-pocket expenses, prescription costs, and more,” notes Schroders.

Further highlighting the need for advisors and reasons why more investors that aren’t currently working with advisors should change their tunes are the following points from the Schroders poll. First, 58% of retired Americans don’t know how long their savings will last. Second, “63% wish they had done more planning prior to retiring.”

Issues for Younger Investors

Young folks reading this and advisors should remember the old idiom “sins of the father,” which implies kids pay for the mistakes of their parents. In retirement parlance, there’s relevance because it appears some parents have committed the “sin” of not working with advisors to bolster retirement plans.

Younger generations can avoid that misstep. They have the benefit of time being on their side, but that’s not a permanent advantage, meaning they should act now to prevent repeating of the retirement “sins” of the father.

“The challenges facing retirees today are further evidence of the retirement savings crisis.  For younger generations with longer time horizons, now is the time to prioritize saving for a brighter future,” said Deb Boyden, Head of U.S. Defined Contribution at Schroders.

Related: Dividend Growth Stocks Prove Inflation-Fighting Mettle