In 2020, Joe DiPastena felt confident enough to retire earlier than expected. But in 2022, he had doubts.
“When the economy started to crash and my investments started to dwindle…I started to get pretty nervous,” DiPastena said, who lives in Phoenix. “I didn’t want to deplete my savings.”
DiPastena, a 64-year-old freelance graphic designer, considered himself semi-retired in early 2020, with a few clients. But once the pandemic shutdowns hit full swing, that work quickly dried up. Still, he felt good about retiring and felt his finances were in good shape.
But this year, his confidence began to wane.
After the S&P 500 gained 27% in 2021, the first half of 2022 was one of the worst years in over 50 years. DiPastena decided the best way to weather the storm was to get back to work.
“I just kept watching my investments go lower and lower and then my financial adviser said, ‘Maybe we should do this or that.’ And it’s like, ‘well, the best thing I can do is go get a scary job,’” DiPastena said.
He started a new full-time position as a product specialist in June, in a completely different field from his previous career.
“I feel like I can replenish my savings and…eventually have more savings than I expected.”
The pandemic has pushed a wave of workers into retirement. Some did it voluntarily. Others lost their jobs, were expelled or accepted buyout offers. But soaring house and stock prices meant those with assets were likely in good financial shape.
“Inflation was still quite low, we saw the markets continue to rise, really throughout 2021, and if you owned your home, your real estate value skyrocketed – I think it was easy for the people to feel financially pretty good about this decision, whether it was their own choice or in many ways they are forced upon them,” said Sarah House, senior economist at Wells Fargo.
But now the economy is on much more fragile ground: stock markets have sold off, recession fears are looming and inflation is at its highest level in 40 years.
“Fast forward to this year, and we have seen a bear market in equities and even if you have a lot of bonds in your portfolio, the value of that has had one of its worst years on record. The script flipped pretty quickly,” House said.
And the fall in investment prices is not the only problem. When it comes to planning for retirement, there are many unknowns and risk factors to consider, including inflation. But a 9.1% annual increase in consumer prices is hard to predict and weighs heavily on those living on fixed incomes.
According to Kyle Newell, a certified financial planner in Florida, recent increases in inflation have been much higher than what the average financial planner will use in their modeling. “Typically, for your general living expenses, you see maybe a 2% to 3.5% inflation assumption in this planning.”
Connie Weyant has felt the impact of rising prices on her retirement savings, particularly the rising prices of building materials.
After nearly 40 years of working in local government, Weyant decided to retire in 2019.
“I had a great career and wanted to be on top,” said Weyant, 59, who lives in Fairfax, Virginia. “I loved my job. I knew I had saved for retirement and bought my retirement home.
She had retirement savings and investments and spoke with her financial planner before deciding to leave the workforce. “I felt good.”
But she didn’t expect everything to get much more expensive.
“My costs, like everyone else, have gone up exponentially just living to the same standard as before, which is pretty basic. But still, everything is so expensive.
When a bathroom in her home needed renovations, she found herself facing much higher costs due to recent supply chain disruptions and rising building material prices.
“I’m amazed at the cost,” she said. “You have to pay the prices because you have to have a working bathroom.”
She started looking for a job earlier this year to help offset some of the higher prices. In April, a volunteer position she held turned into a part-time job.
“The work is rewarding but also useful to be able to cover the semi-panic that sets in with the investments going down and having to think about everything you do differently now because everything is so much more expensive.”
Bill Donaldson has spent his entire career with a large company in Phoenix, starting as a software engineer and working his way up to a management position. For three decades, he made sure to max out his 401(k) and also had a pension.
He had thought about retiring for a few years before the pandemic – he didn’t find the job as satisfying as before and his financial adviser gave him the green light. And then a few months into the pandemic, he asked for a voluntary layoff.
“When the option came up that I could retire now and get paid for six months, that’s not bad.”
Since he was 56 when he retired in 2020, he planned to use his non-retirement accounts to live on to avoid any early withdrawal penalties.
“At the beginning of this year, when the stock market started to fall and prices started to rise, I thought ‘this might make things a little more difficult than I would like’.
Donaldson had always considered working part-time in retirement to stay active and try new things, and when a recruiter approached him about a full-time contracting job at an aerospace company, he decided to go there. go.
“It takes away any sort of worry I had watching my nest egg shrink.”