Estimated read time: 5-6 minutes
If you've been trying to save and invest for retirement, it's been a painful year.
All three stock indexes, including the DOW, S&P 500 and especially the NASDAQ have suffered steep losses.
And if that weren't enough, inflation is still running rampant. The housing bubble is bursting. And we could be on the doorstep of the next recession.
But rather than wallow in all the bad news, there are four invaluable retirement planning lessons that have come from all of the drama.
And these lessons could help you protect and grow your nest egg in the New Year.
Lesson #1: This inflation was not 'transitory'
When inflation first reared its ugly head in 2021, the government tried to squelch everyone's fears by saying it was "transitory."
Now we know this wasn't even remotely close to the truth.
Many economists and inflation experts predicted the opposite. They feared high inflation rates could stick around for a while. And it turned out to be true.
Today we're still fighting record-high inflation rates. November's latest inflation rate was 7.1%, which is still nearly four times higher than "normal" inflation rates.
Yes, inflation makes everything more expensive. But it doesn't end there.
If you're putting money into traditional fixed-income options like CDs, savings accounts or even bonds, you're actually losing money after you account for inflation.
This is why it's critical for your investment strategy to include a hedge against inflation.
Lesson #2: Know your appetite for risk
Let's be honest — since March of 2009, the U.S. witnessed the longest bull market in history. Everyone had it so good for so long, it seems like they forgot the stock market can go down too.
2022 reminded us how painful stock market corrections and bear markets can be.
Fidelity reported that the average person lost almost 25% of their 401K balance this year. That's a big hit for anyone. But it's even more devastating for retirees who are living off of their portfolios.
While you don't have control over what happens next in the stock market, you do have control over how much risk you're willing to take.
Major swings in stock prices could cause your portfolio to get out of whack. And it's common for us to meet with clients who are taking far more risk than they know or need to as they near retirement.
That's why it's critical for you to consistently update and rebalance your investment portfolio every 6 to 12 months, or during any major financial events or life changes.
Lesson #3: Saving and investing for retirement is no longer enough
Retirement planning used to be a lot easier than it is today.
Previous generations had company pensions, (well-funded) Social Security benefits, solid fixed-income returns and only had to plan for 10 to 20 years of retirement (because of shorter lifespans).
They didn't need to do much more than save and invest their money to enjoy a successful retirement.
But it's different today, isn't it?
The economic fallout from the pandemic has turned retirement planning on its head.
Inflation has significantly driven up the cost of everything. Traditional fixed-income options are guaranteed to lose money. Out-of-control government spending could trigger higher future taxes. Social security and Medicare are significantly underfunded (and cuts could be coming soon). We're living longer than ever, which means we have to make our money last 25 to 40 years. And we're on the doorstep of the next recession.
So, saving and investing for retirement alone is no longer enough.
If you hope to retire successfully today, you'll need a comprehensive plan to overcome these new challenges. Otherwise, you run the risk of running through your entire life savings far too soon.
Lesson #4: Legislative risk threatens your retirement
Most people haven't heard the term "legislative risk" before.
It basically means that the government can change the rules of the game anytime it wants. And you don't get a say in the matter.
The government can spend money on anything it wishes. And then it can turn around and raise your taxes to make you pay for it.
It can change the rules on your IRA and 401K. It can cut your social security benefits (even though you've been contributing as much as 12.4% of every paycheck to the trust fund since you were a kid). And the list goes on and on.
That's not a conspiracy theory or a partisan point. This is a legitimate threat to your hard-earned savings today.
That's why more and more people are taking proactive steps to Washington-proof their nest eggs.
2023 could be another challenging year for anyone who is trying to save and invest for retirement.
But here's a pro tip most people don't consider — one of the fastest and safest ways you could grow your savings today is by lowering your taxes in retirement.
If you take advantage of a few simple retirement tax-planning strategies now, you could save yourself tens of thousands, if not hundreds of thousands of dollars in retirement.
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Ryan Thacker and Tyson Thacker are the President and CEO of B.O.S.S. Retirement Solutions in Salt Lake City, a four-time winner of Utah's Best of State Award.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency.