The past few years haven’t been easy for most Americans, thanks largely to the lingering effects of inflation and Covid-19. Every time we think these twin plagues are disappearing, there are signs of them resurfacing.

For the lion’s share of advisors engaged in retirement planning, the return of inflation after 40 years is most unwelcome. According to dozens of advisors I’ve spoken with in the last three years, few clients succumbed to the pull of the so-called Great Resignation during the pandemic. Instead, they opted to stick to preset plans.

And with the recent bout of inflation, that’s a good thing for the vast majority of Americans. Bloomberg News recently cited a Natixis survey finding that about half of affluent Americans say inflation is “killing their dreams of retirement.”

According to the U.S. census, real median income fell 2.3% between 2021 and 2022. Between 2019 and 2022, that cumulative decline exceeded 5%, according to the St. Louis Fed.

For those who are retired and living on fixed incomes, the pain is real. Before, from 1990 to 2020, inflation mostly moved in a narrow band between 2.0% and 3.0%. Retirees knew they would lose purchasing power gradually over the decades, but they didn’t think they would lose it over a few months.

All this explains why Americans feel so gloomy about the economy despite record levels of job growth and employment. It doesn’t matter to them that inflation remains a much bigger problem overseas; they’re still getting sticker shock when buying groceries and gasoline here.

Advisors and their clients enjoy a much broader opportunity set than average Americans. After all, they have money, and most have much more of a say in when they retire.

In this month’s cover story, senior writer Jennifer Lea Reed looks at how advisors are rethinking retirement investing now that fixed-income markets offer yields that investors haven’t seen for 15 years. Advisors don’t have to take as much risk in equities as they did in the previous decade to help clients meet  their retirement goals, so many of them are making adjustments to client portfolios accordingly.

Still, it’s worth recalling that major allocations to equities helped clients reach levels of wealth they never imagined in the decade following the Great Recession. And an excessive investment in bonds could lead them into the purchasing power trap that devastated retirees in the 1970s.

No one knows exactly what is normal, but in hindsight it would seem the inflationary 1970s and the deflationary period from 2010 to 2020 were abnormal. In recent months, real wages have started to turn up, job growth is slowing down and, as of mid-September, the Atlanta Fed’s GDP forecast is calling for impressive third-quarter growth of 4.9%.

It’s very conceivable the next three to five years could be a lot better. The key for advisors who can’t predict what the next New Normal will look like is to not make big mistakes.

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