In 2024, factors such as inflation and two years of stagnation in the S&P 500 index, despite short-term rallies, have the potential to affect retirement.
Inflation, mediocre equity market performance and the risk associated with poor returns in early retirement are among the factors retirees should be aware of going into 2024.
“We are in a new world of higher interest rates that we haven’t seen for 10-plus years since the Great Financial Crisis,” Jeff Rosengarten, a principal at Homrich Berg in Atlanta, said in an email.
Rosengarten said in today’s market, a retiree can dial down portfolio risk while earning about 5% per year on assets such as Treasurys that will still deliver a reasonable return.
Here’s what to know about the retirement outlook for 2024.
Factors Shaping the 2024 Retirement Landscape
The need to plan for long and potentially expensive retirements continues to shape the retirement landscape for 2024.
In fact, decisions such as the age to begin taking Social Security can have a big impact on retirement savings, according to T. Rowe Price’s 2024 U.S. Retirement Market Outlook.
For example, a person who retires at age 62 with $700,000 but waits until age 70 to take Social Security spends down his or her portfolio at a faster rate in the early years of retirement. But that person may have enough money to live to age 91.
“Retirees are living longer, especially those who can afford good health care, so it is important to plan for a long life,” Rosengarten said.
Money going toward travel in retirees’ 60s and 70s is often shifted toward health care in their 80s and 90s.
“Building some flexibility into your retirement plan and annual spending will be important,” he said. “The ability to cut back in years if we see prolonged downturns will go a long way in making sure you don’t outlive your money.”
Retirement Living Standards in 2024
In a high inflation and high interest rate environment, retirees should be vigilant about monitoring their expenses and portfolio withdrawal rates.
“Costs will continue to increase. Whether you are 35 or 75, prices overall do not generally decline over time,” said Kate Yoho, a certified financial planner and financial advisor at TBH Advisors in Brentwood, Tennessee, in an email.
She points out that items people tend to spend on regardless of the economy, such as health care, drugs, food and fuel, are more likely than not to increase in price.
“Be prepared with a buffer amount above your expectations,” Yoho said.
With assisted living and home care costs rising, she recommends looking into long-term care insurance or other prepaid solutions that have a set price now for a benefit later.
Managing Retirement Risks in 2024
“While inflation has cooled a bit in 2023, the rate of inflation in 2022 was the highest since 1981,” said Lisa Featherngill, senior vice president and national director of wealth planning at Comerica Wealth Management, in an email.
“As we all know, prices have increased substantially in the last two years. Thus the amount needed for funding retirement expenses has increased,” Featherngill said.
That means retirees need to either save more or get a higher return from their investments. Earning a higher rate of return, however, typically involves more risk.
“This may not be an option for someone within 10 years of retirement who cannot afford the impact of volatility,” Featherngill said.
Qualified retirement vehicles, such as individual retirement accounts and deferred annuities can help address that problem by allowing money to accumulate pretax.
The Future of Social Security in 2024
The Social Security Board of Trustees’ 2023 annual report revealed that Social Security’s trust funds may fall short of money needed in 2024 unless Congress takes action.
That would mean annual revenue coming into the fund through taxes would only cover 80% of benefits.
Congress is aware of the problem. While it’s politically unpopular to make changes, that may be a reality Congress is facing.
Featherngill said the House Republican Study Committee is evaluating options, including raising the full retirement age. The last time Congress made a significant change was in 1983 when it raised the full retirement age to 67 for all Americans born in 1960 or later.
The House Republican Study Committee is currently proposing another increase, this time to 69, done incrementally over an eight-year period beginning in 2026.
“This would affect individuals who are 59 or younger today,” Featherngill said.
Specifically, the age at which workers could receive full Social Security benefits would increase by three months per year for those who reach age 62 from 2026 to 2033.
Emerging Innovations and Trends in Retirement Planning
In its report, T. Rowe Price identified personalization as a key theme shaping the retirement landscape in 2024.
“Targeted experiences can drive behavioral change and improve retirement outcomes,” the report says.
In particular, T. Rowe Price forecasts that advances in data analysis, technology and integrated experiences to engage diverse audiences will help drive better retirement results.
In a summary of its findings, T. Rowe Price said, “Consumers are increasingly looking for personalization in all aspects of their lives. The retirement experience is no different.”
Data from the company’s workplace retirement plan participants show that tailored and targeted experiences can drive behavioral change and help improve an investor’s likelihood of sticking to his or her plan.
In other words, one-size-fits-all won’t be as effective as it may have been in the past. For example, T. Rowe Price’s report found that personalized educational videos and native language portals, such as those in Spanish, result in better financial decision-making.
Preparing for the Future of Retirement
Lower portfolio growth rates are likely to affect investors in the coming years, according to T. Rowe Price.
In its report, the company said investment portfolios need to account for both inflation risks and recession risks, although analysts believe the U.S. economy may avoid a recession in the near term.
However, deglobalization, peak energy productivity and a tight labor market will add up to higher inflation and higher interest rates.
In addition, investors should stay up to speed on retirement withdrawal rules or hire a financial advisor who can guide them.
“It is critical to know the nuances of the changing landscape around retirement account rules,” Yoho said.
For example, she said, the SECURE 2.0 Act, which Congress passed in December 2022, created a complex web of rules about how and when inherited IRA distributions can or must be taken.
In addition, beginning in 2023, the SECURE 2.0 Act increased the age for required minimum distributions from qualified retirement accounts to 73.
That increases to 75 as of Jan. 1, 2033.
