The debate continues: has inflation crested or will it remain stubbornly high?

In June, inflation reached its highest level since 1981, with 53% of Americans saying they are very concerned about the level they’re seeing in the U.S. economy today, according to the Nationwide Retirement Institute’s ninth annual Social Security Consumer Survey.

The survey also found that continued financial repercussions from the pandemic and new concerns over market volatility and high inflation have led 66% of Americans to worry more now than they did before about their retirement income—a 10 percentage-point spike from 2021!

Analysts in recent weeks have suggested that inflation could become entrenched in the economy and have an adverse effect on real income regardless of whether current levels persist or not. As the Fed continues to fight inflation, clients planning for retirement may be interested to know that products dependent on interest rates and other market activity— like fixed annuities or variable annuities with guaranteed living benefit riders—can help mitigate risk associated with inflation.

The Up-Side Of Higher Interest Rates
Rising costs create stress for current or soon-to-be retirees living on or preparing to live on fixed incomes. As financial conditions continue to tighten and potentially create more market volatility, finding stable income streams is critical for portfolio planning.

Clients who turn to banks as a safe haven during times of economic uncertainty may limit their growth potential as most banks are not increasing their crediting rates. With over $3 trillion in extra savings stashed in cash deposit accounts in banks today, it is even more likely that these assets will not grow even close to the rate of inflation, leaving these investors further behind.  

It’s important for your clients to know that there are more solutions available today than during the 1970s and 1980s when inflation was last seen at these levels. In fact, high inflation, coupled with low bank crediting rates, makes annuities a more attractive solution.

Rising rates also allow companies like Nationwide to provide better consumer value on virtually all types of annuities as well as living and death benefits. When companies get better returns on the dollars they invest, they can pass that to clients in the form of protection and guarantees, which is happening right now at Nationwide and across the industry.

An Annuity Can Help
Retirees have become increasingly concerned about how long their incomes will last in their golden years—especially when retirement can last 30 years or more. While we don’t have a crystal ball, we know interest rates will continue to fluctuate, as will the stock market. Less fluid, however, will be your clients’ needs in retirement: income they can’t outlive, principal protection, legacy planning and tax deferral solutions. The financial industry has done well educating consumers on how to accumulate assets. Now we must encourage them to plan for smart decumulation as they enter retirement and live off their savings.

Solutions that safeguard against market losses and mitigate longevity risk should be of interest to all clients. The protection and guaranteed income offered by annuities are worth considering as signals of an economic slowdown continue to flash warning signs about the U.S. economy. Slower growth, inflationary worries, and geopolitical risks may pose further challenges for the market in the coming quarters.

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