The annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest level in 40 years, up from 8.6% in May, and above market forecasts of 8.8%1. If you pair inflation with losses due to the recent dip into a bear market, the number of workers deferring retirement or cutting contributions is likely to rise. To address these concerns, it is important that plan sponsors provide appropriate employee education aimed at assuaging any anxiety caused by economic and investment market conditions. 

What you should know 

  • 25% of Americans say they will need to delay their retirement due to inflation2
  • 21% of Americans say they have reduced their retirement saving due to inflation2

Delaying or minimizing withdrawals from retirement  accounts during periods of abnormally high inflation and material market downturns is aligned with how employees can minimize sequence of returns risk – the risk that market declines in the early years of retirement, paired with ongoing withdrawals, can significantly reduce how long a retirement account will last. 

Plan sponsors may want to educate employees nearing retirement about sequence of returns risk and educate other employees about recency bias – the cognitive bias that causes us to focus on recent investment market activity and assume it will continue to the extent that we make emotionally-charged investment decisions. 

Providing financial wellness resources can help plan participants successfully navigate: 1) delaying/minimizing withdrawals during a bear market; 2) avoiding emotionally-charged investment and savings decisions that have a long-term negative impact on retirement readiness:

  2. BMO Real Financial Progress Index