Baby boomers have lived through the tech bubble, the 2008 housing and
market crash, and even double-digit inflation in the 1970s, but never
all these financial crises together. Now we have inflation,
pandemic-related supply chain disruptions, a bear market, higher gas
prices, and rising interest rates. That makes an already formidable
goal of saving for retirement even more challenging, especially for
those approaching retirement in the next few years.

Saving for retirement now requires additional challenges and
sacrifices, but also offers some opportunities. Here is how to save
for retirement under challenging conditions:

Adjust your retirement savings plan.
Re-evaluate your retirement timeline.
Reduce your retirement spending.
Stay in the market.
Stress test your portfolio.
Consider a Roth conversion.

Adjust Your Retirement Savings Plan

Many people got used to low inflation and low-interest rates over the
past several years. “During the pandemic, central banks across the
globe did whatever they could to keep their economies going and
growing,” says Robert Gilliland, managing director and senior wealth
advisor with Concenture Wealth Management in Houston. “Because of
that, we’re now looking at inflation that is much higher and interest
rates that are much higher.”

Those who are saving for retirement are increasingly aware of the
challenges of high inflation. “What you want to do is run your plan to
adjust for this new paradigm, which is probably going to be higher
interest rates and a higher cost of living,” Gilliland says. “So for
those who are planning for retirement, now is not the time to stop
saving. They have to review their plans and adjust their inflation
expectations and make sure that they’re properly allocated and
maintain that long-term perspective.”

Re-Evaluate Your Retirement Timeline

Some people have delayed their retirement because of their fears of
inflation, even though they could afford to retire. “They are just
going to continue to work for another year to see how this all works
out,” Gilliland says.

Nick Foulks at Great Waters Financial in Minneapolis, says his father
was thinking about retiring this summer but has now pushed that back
to February to let the market calm down. “Sometimes people have to be
willing to adjust their timelines based on economic conditions,”
Foulks says. “By working one more year or working 18 months more you
could be putting yourself in a significantly better position.”

Reduce Your Retirement Spending

You may be able to retire sooner if you are able to reduce your
retirement expenses. “You have to re-evaluate your spending,” Foulks
says. “It’s important that we spend money on things that are important
to us. But when prices are going up and gas prices are rising and the
cost of living is adjusting, we have to be willing to make the
necessary changes by adjusting our lifestyle and reviewing what is
actually important to us.”

Try to find expenses that can be reduced or even eliminated from your
retirement budget. “Look at your bank statement for the last month or
two and see where you spent that doesn’t necessarily have value to
you,” Foulks says. “When a cup of coffee costs you $5 or $6 a day and
you multiply that by 20-something working days, you’re spending quite
a bit, so there are areas that are not truly of value where you can
change your spending habits.”

Stay in the Market

In the first half of 2022, there have been wild swings in the stock
market. “We’re not used to this volatility, so we remind our clients
that it’s time in the market, not timing the market,” Gilliland says.
If you pull your money out of the market before it recovers a
temporary loss becomes permanent.

People saving for retirement need to stay properly invested and
continue to save. “If you have a five- or a 10-year time horizon, you
can make the argument that things are on sale, and maybe they’re going
to get cheaper,” Gilliland says. “If you continue to treat yourself
like a bill and pay yourself every month, you’re going to end up
coming out ahead by dollar-cost averaging.”

Stress Test Your Portfolio

Run the numbers to make sure your portfolio will be able to cover your
retirement expenses under a variety of different conditions. Consider
scenarios such as stock market losses and high inflation. “Stress test
your portfolio,” Gilliland says.

For example, find out how long your retirement savings will last if
your retirement costs increase due to high inflation. “A lot of
financial planners have been using, up until recently, an inflation
rate of 2.3%, which is a long-term average. Well, we’re clearly in a
much higher inflationary period and probably will be for some time,
though it may be moderating,” Gilliland says. “Run your plan to adjust
for this new paradigm, which is probably going to be higher interest
rates and a higher cost of living.”

Consider a Roth Conversion

It can make sense to convert your tax-deferred retirement savings to
an after-tax Roth account while the value of your retirement account
is reduced. When you convert to a Roth you pay income tax on the
amount converted and then withdrawals in retirement are typically
tax-free. Since the value of your IRA portfolio is down, your tax
obligations would also be reduced. If you have a portfolio that’s
dropped in value, you would be paying taxes on the smaller Roth
conversion, and then you won’t have to pay income tax on future
recovery gains in the Roth account.