During the last few months, the financial markets have struggled to digest the impact of inflation and higher interest rates on investor portfolios. Meanwhile, debates between economists over the growth outlook for the U.S. and the world have fueled further uncertainty.
Yet, if you're waiting for some sense of "normalcy" before you jump into, or resume, your retirement savings—as 45% of Next Gen individuals indicated doing in a recent study—you'll likely do your future more harm than good, according to Houston-based Aerika Morris, a client service director with BOK Financial®.
"Normal? What is normal? That feeling when the economy is thriving and everything is going well?" Morris asked. "The reality is that life moves in different cycles with ups, downs, and different things move the market. Looking back over the last 30 years, the economy experienced a lot of ups and downs, and every single downturn was followed by an uptick."
Of course, financial markets provide no guarantees, but insisting on waiting for an ideal time to invest is a sure-fire recipe for tougher choices down the road, especially for younger savers who have decades to ride out market swings.
"We cannot influence things like interest rates and stock performance—or things like the pandemic, gas prices and inflation," Morris said. "We can, however, influence decisions such as how we save, how we invest and what our long-term goals are."
Focus beyond today's choppy conditions
Instead of solely focusing on the uncontrollable developments of the present, Morris recommends first looking into the future and envisioning your retirement. Maintaining your current standard of living will require 70% to 80% of your current monthly income since expenses in retirement are typically 20% to 30% lower than when you're working.
"Planning for retirement is not all about your passions and what makes you feel good, but how do you want to live?" she said. "It's really goal-oriented: Do you like luxury things? Do you want to travel? What will your family picture look like? Do you want to live in the suburbs or the city?
"Successfully saving for retirement involves a long-term strategy over a long-term time horizon, and it's important to start setting goals and prioritizing what you're spending today."
It's also critical to understand the multiple components of your monthly retirement income stream, which Morris explained is how your savings efforts will fund your golden years. Social Security, for example, may not be enough, or it may not be available to you, depending on the types of jobs you've held during your career.
Morris cited a family member who was a Texas-based school teacher. She had no idea that she wasn't paying into Social Security and could only rely on the insufficient contributions made into the state retirement system on her behalf. In her 40s, she determined that she had to boost her personal savings efforts if she was going to fulfill her retirement lifestyle ambitions.
"Knowing what you're aiming for arms you with the information you need to make important decisions," she said.
And if you put off setting goals and making those decisions? Morris likens it to two distinct approaches to saving $5,000 for a vacation planned for June 2024: If you set up a plan in the next couple of weeks, you're looking at setting aside roughly $200 a month until your departure date. Wait until January 2024, and you'll need to sock away $625 a month.
"The cost of procrastination is significant," Morris said. "Therefore, getting started early will allow you to better navigate competing priorities, market uncertainty and downturns, as well as unexpected personal emergencies, while still having time to meet or make adjustments to your retirement goals."
Inflation definitely part of the equation
Of late, any current conversation about retirement savings quickly turns to inflation, which spent years lingering at mostly benign levels before spiking to 40-year highs this spring. It's an important consideration, given that higher prices mean a dollar buys less, which can be very detrimental to a retiree on a fixed income.
For an up-to-date perspective, Morris points clients to an online retirement savings calculator, which accounts for your current savings, your age, a projected inflation rate and a portfolio return rate, among other things.
Depending on the result, Morris said you might look to save more, tweak the aggressiveness of your investment choices or reconsider your retirement goals.
"It's important to ensure that the rate of return on your portfolio is keeping pace with inflation; if it's not, you may need to adjust your thinking and your strategy," she said.
Much like accepting that "normal" is actually a constant state of flux, Morris encourages all to be objective and open in assessing their personal finances, which can be helped by talking to a financial professional.
"A lot of people are afraid to be transparent and vulnerable about their personal finances," she said. "However, holding back will prevent you from getting the professional advice you need to make informed decisions. The sooner you know the truth, the better. It's like being transparent with your doctor about a medical condition—if you aren't, they won't be able to appropriately treat and manage it."