One might have hoped that the world would emerge from the Covid-19 pandemic in a better place than we would appear to be at the present time. Indeed, we might be in that place had Russia not invaded Ukraine.
Life, however, takes numerous strange turns, and we have little choice but to play the hand we are dealt. Americans inclined to feel sorry for themselves could benefit from a quick scan around the world.
Even if the weather turns out to be warm over the next six months, Europe is facing a brutal winter. Japan is confronted with a plunging currency and an increasingly belligerent giant neighbor.
As the epicenter of Covid, China was presumed to be the first nation to leave the pandemic behind. Three years later, it remains mired in problems stemming from the public health crisis. Everyone assumed the Asian giant’s GDP would exceed America’s in the next two decades. Now even that’s open for question.
Nowhere is the strong dollar causing more suffering than in emerging markets. While these nations have long-term demographic advantages, the next year is likely to be painful for people hardest hit by the pandemic.
None of this is any consolation for the wave of recent retirees in America. As senior writer Jennifer Lea Reed writes in this month’s cover story on page 38, sequence-of-return risk—what happens to those who retire in a bear market—is back.
So far it might appear we are experiencing a garden-variety bear market, except for one thing—the return of inflation, which is running at 40-year highs.
One might think there are few worse environments for retirees than the bear markets seen from 2000 to 2002 and from 2008 to 2009. In reality, most students of bear markets have found the 1970s exacted a heavier toll than even the Great Depression, specifically because of inflation. That’s because increases in the cost of living got locked in and retirees were spending their savings as their purchasing power eroded quickly. In contrast, retirees in the 1930s got some benefit from deflation.
Reed reports on two recent Vanguard studies with what she calls “brutal” findings. The first tracks the experience of two retirees, one in 1973 and the other in 1974. You should read the article in its entirety, but here’s a hint: Retiring even six months or a year later can provide a nice cushion.
We know little so far about how this latest round of inflation will play out except that the “transitory” scenario described last year by the Federal Reserve didn’t happen. The fact that central bankers seem to be as clueless as the rest of us doesn’t inspire confidence. That’s all the more reason Americans with financial advisors are luckier than most others.
Evan Simonoff
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