High inflation is one of the dominant financial stories of 2022. Inflation, at 8.2 percent (as of the end of September 2022), has hit a high not seen in four decades and is making the price of almost all purchases higher this year, including necessities such as food, gas, utilities, and medical care. 

Not only that but there’s no immediate end to inflation in sight. The U.S. Federal Reserve has instituted a series of interest rate increases designed to curb inflation. But so far, that’s simply made the cost of borrowing money higher, so that people in the market for mortgages, loans or credit cards are simply paying more. It hasn’t brought inflation down yet.

How does or will inflation impact Generation X’s financial and retirement planning?

Inflation and Generation X

There’s ample evidence that Gen Xers, those born between 1967 and 1982, are more concerned about inflation than the generations on either side of them. More than 60 percent of Gen Xers say that have reduced their discretionary spending because of inflation, as opposed to just 37 percent of Millennials and 54 percent of Baby Boomers.

Fight inflation with a comprehensive financial plan crafted with the help of a CERTIFIED FINANCIAL PLANNER™ Professional in Tennessee!

There’s reason to be concerned. Inflation hits the pocketbook in both discretionary spending and essentials. Your money doesn’t go as far. If very high inflation persists for several years, you could be looking at very steep increases in prices over the period.

Plus, Gen X will be the next generational cohort facing retirement. High inflation hurts retirees who live on a fixed income. 

Inflation also makes it challenging to budget effectively for your retirement. Many financial advisors recommend creating a working budget for your retirement goals in advance of actually retiring, so you can plan effectively for a comfortable retirement. 

But if inflation is high, a Gen X’er who is in their early 50s may assume that their grocery prices will remain roughly the same in retirement, since retirement is only about a decade out. They won’t. Two years of nearly 9 percent inflation alone are likely to hike those prices by approximately 18 percent. 

In addition, even if the Fed does tame inflation, their goal is 2 percent annually. If you’ll be retired for 30-plus years, the cost of food will go up whether inflation is high or not. It just goes up more steeply in periods of high inflation.

Some Gen X’ers who are curtailing expenses due to inflation may cut back on their retirement contributions or not make them at all. Such a move can have serious consequences once you actually do want to retire. Even if you’re eligible for Social Security, Social Security benefits are unlikely to cover your needs for a comfortable retirement. Most people need their own savings for a comfortable retirement.

Finally, of course, inflation is not the only current economic problem. The stock market has entered bear territory this year since the major market averages have lost more than 20 percent of their value. A drop in the worth of your portfolio may have you feeling, much like inflation, that your retirement plans look grim because you don’t have as much money as you did! Some forecasts believe that the U.S. will be entering a recession soon, which can have adverse effects on jobs and earnings.

How to Navigate Inflation

So how do you navigate inflation and other economic concerns? You need a financial plan to protect yourself from it and to meet your goals.

The picture for Gen X in fighting inflation is not all gloom and doom. First, the generation as a whole is in their high-earning years. Second, many of you have paid off your mortgage, which frees up cash flow to achieve your other goals. 

Third, some of you may be empty nesters, which means that the years of educational and other expenses may be over or nearly so. Many Gen X’ers may be experiencing strong positive cash flow for the first time

The good news is that properly managed, new found free cash flow can prepare you for retirement and other financial goals. 

It’s crucial to think seriously about your financial goals with a financial advisor in Greeneville, Tennesee. That’s the only way to make a plan to achieve them.

The number one financial goal of most Americans is retirement.  Since only one-third of Gen X has hit their 50s, it’s possible that you’re just not starting to think seriously about retirement.

A financial advisor can help you work toward ensuring that your retirement portfolios are protected against inflation. It’s crucial to keep contributing to tax-advantaged retirement plans such as 401(k)s if you have access to them, especially if your company gives a match. A match is free money. If you don’t have access to a 401(k), Individual Retirement Accounts (IRAs) are also excellent retirement vehicles. 

It’s important to allocate all assets in your portfolio appropriately for your financial goals. It may be tempting to pull out of stocks or avoid them altogether if you’re looking at the dismal returns of 2022. 

But the fact is, stocks are one of the few investments that historically outpace inflation. Over the last century, the U.S. stock market has returned 10 percent on average every year, versus an average of 2 percent annual inflation. Bonds and cash, the other two primary asset classes, are highly important in providing diversification and stability to portfolios. But their returns, now at 2 to 3 percent per year, do not outpace inflation. 

Another emerging asset class is cryptocurrencies. Many investors are unsure how investing in digital assets may benefit them. The financial advisors at Sapiat Asset Management have specialized training in digital assets and are here to help answer any questions you may have.

Working with a Greeneville, TN Financial Planner

Financial planners can help you realize your financial goals and initiate strategies to protect you against inflation. Yet some surveys indicate that Gen X’ers are less likely to work with financial planners than other groups. Both Baby Boomers and Millennials feel that financial advisors are helpful, but Gen X is more skeptical.

Partly, this is because Gen X likes to have control over its own money. They may also be skeptical that financial planners have their best interests at heart.

Participating in comprehensive financial planning will let you see that financial advising doesn’t mean you aren’t in control of your own money. At Sapiat Asset Management your goals and potential financial strategies will be fully discussed and the ultimate decision is yours. 

In addition, we are fee-only fiduciaries. That means that not only do we put your financial best interests first, but we are also required to by law. That’s quite different from brokers or other types of salespeople, who are required only to make sure your investments are suitable and may be paid by commissions.

Sapiat Asset Management financial advisors are Gen X’ers themselves. We have the knowledge and expertise you need for this financially important time of your life. Contact us today, for a more secure tomorrow!

Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.