Inflation has had a traumatic impact on investors which has them feeling helpless about their financial future, according to research published by Boston-based Natixis Investment Managers.
Nearly half of the respondents in a survey of 450 investors, 46%, said that inflation is killing their retirement dreams. An even larger potion, 84%, in the Natixis Investment Managers Individual Investment Survey said that the recent spike in inflation demonstrated how big a threat inflation is to their retirement plans.
“Inflation has left some folks with a little bit of PTSD,” said Dave Goodsell. executive director at the Natixis Center for Investor Insight.
Inflation has become the number one financial fear for investors surpassing other long-standing fears such as tax increases and large, unexpected expenses, the survey discovered.
There is also a lack of confidence among those looking to save for retirement. Of those working, 47% said that it would take a miracle to retire securely. That is up from 41% from two years ago, according to the study.
That fear demonstrates the importance of a financial advisor and the need investors have for financial guidance, according to Goodsell.
“You don’t need a miracle to retire securely, you need a plan and that’s where advisors come in place,” he said. “They do really important work for getting people focused on their goals, defining them, and making this more of a process than just a reaction.”
While individuals might already be working with a financial advisor, they should keep the lines of communication open to determine the impact inflation has had on their retirement goals, Goodsell urged.
“Go back to that financial plan and make sure that the assumptions are correct,” he said. “That their clients feel comfortable, that they’re doing all the right things along the way.”
Overall confidence was not that high among retirees, according to the survey 52% of working Americans do not foresee themselves having the financial freedom to do what they want in retirement and 48% expect to have to make difficult decisions in retirement. Respondents expected that there would be some tradeoffs including having to live frugally, having to move some place cheaper, having to rely on friends or family for finances, or having to work in retirement.
To combat inflation, the Federal Reserve Bank has raised statutory interest rates to historic heights, but it has had an inconsistent impact on the perception of retirement investing among respondents, according to the study. Despite the dramatic increase in rates, only 22% of retirees and 45% of workers said that they will include bonds in their portfolio this year.
Goodsell praised financial advisors for working with clients, incorporating a plan, and then translating that plan into a method more easily digestible for an investor.
“The number of advisors and the firms that have been focusing on financial plans are really doing their clients a good service [to take an interest in their retirement discussion] to talk about it in terms of goals, in terms of understanding what you want to accomplish with your money,” he said.
In addition to the survey results, the firm also released its Global Retirement Index, which ranks 44 countries based on their retirement security. This year’s index ranked the United States 20th, which is a drop from 18th the year before. However, the U.S. overall earned a score of 71%, which is an increase over last year’s 69%, the index said. The score is based on an aggregate of the mean scores from 0-100 from 18 measures that fall into four sub-indices: finances in retirement, material well-being, health, and quality of life.
With the economy still in flux, Goodsell emphasized the need to lean on a financial advisor who can present a realistic outlook for a person and who can make decisions based on fact and not on emotion.
“People need to do a better job of keeping their expectations in check and keep them grounded,” he said. “The advisor is always the voice of reason to be able to say no however stressed you are about something; we can always do something to make it better.”