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What can retirees do in the face of high inflation?

Yahoo Finance’s Rachelle Akuffo is joined by three retirement experts - Jean Chatzky, David Blanchett, and Ida Rademacher - to discuss strategies that retirees can employ as inflation eats into the power of their nest eggs.

Video Transcript

RACHELLE AKUFFO: A big thank you to Jean and David and Ida for joining us. So first for-- a lot of people who are looking at their 401(k)s they're seeing what's happening. For those who are currently in retirement or those who are approaching retirement, I wonder if each of you could give just a piece of advice for people who are worried about how inflation is going to be affecting them in the years ahead. Jean, if I could start with you, please.

JEAN CHATZKY: Sure, absolutely. And, I think, controlling the things that you can control is sort of the order of the day. When we're looking at inflation, when we're looking at the volatile markets, when we're looking at interest rates, there's only so much that an individual can do to right their financial situation. And grabbing on to those things is really the key to being resilient during these times.

And so if you can get yourself to focus on your budget and making sure that you're paying attention to where your money is going, that you're tracking your spending, that you're spending in a way that makes sense to you and you're not going overboard particularly as we head into the holiday season. Also, when you're looking at those interest rates. Now's the time to try to grab a little bit of additional money on your cash. Now's the time to be aggressive in the areas where you know that you can be aggressive and just try to keep your head down and move ahead on the straight and narrow. And you'll get through it over time.

RACHELLE AKUFFO: And, David, advice for me. Obviously, it can be quite overwhelming for people looking at their 401(k)s especially right now.

DAVID BLANCHETT: Yeah. I mean, the first thing is that inflation is a very personal number, right? The CPI is a weighted basket of goods that all Americans consume. And so first understand how this has affected you. And more importantly the question is, what do you want to do going forward?

And, I think, that for a lot of folks, for example, who weren't maybe interested in delaying claiming Social Security, it gives them an option to hedge against future inflation increases. So, I think, the key thing is to understand what it's done for you and what you can do in the future if this happened again.

RACHELLE AKUFFO: And also, Ida, for you because a lot of people are wondering, should I retire? Should I hold off on it? What sort of advice do you have for people who are trying to really try and make these decisions right now?

IDA RADEMACHER: Yeah, I think, I'd follow suit with the advice already given for those who are close to retiring as we look at inflation and recession. I'd point out that for those that are younger in their working careers, there is less retirement savings for those-- we still have about 57 million people in the US who didn't have access to retirement savings.

Those who have long horizons should take part in their plans. And there's policy changes that are going to make that even more accessible for people to have retirement savings plans. So the long term practices shouldn't change the idea of investing in your future. And if anything, the sobering realities of what's happening right now in terms of both rising costs and the need for thinking about long term savings should be something that doesn't dissuade you from investing and from saving for retirement.

RACHELLE AKUFFO: And, Jean, Ida raises a good point. Obviously, we already have high inflation that people are dealing with or so potentially planning for a recession depending on whether the fed can stick that soft landing. So when you have this sort of 1, 2 punch, how does that affect people depending on the saving and income levels that they're at?

JEAN CHATZKY: Yeah, it's incredibly different depending on where you are. We know that this kind of a 1, 2 punch impacts people at lower incomes, people living paycheck to paycheck most because they don't have the wiggle room to deal with inflation. But Ida made a terrific point that if you are older and if you're at your higher earning levels and you can, in fact, delay retirement for a little while, opt not to retire, not to make those big changes right now, even hanging on for another six months another year, another year and a half if you can, gives you that opportunity to delay Social Security to allow the money in your retirement accounts to continue to grow because you're contributing to it but also potentially to come back from this sort of a downfall.

And for those folks in the middle, if you don't have, as she said, the opportunity to contribute to a work based plan, getting into an IRA, getting into some sort of a plan for retirement that you have ginned up yourself is really the order of the day. Many of the strategies that we're talking about are the tried and true sort of save, invest, stay with it, don't panic. But that's what's going to get us through this period.

RACHELLE AKUFFO: And, David, a lot of people are wondering, how can I protect what I already have or perhaps how can I maximize what I already have? Talk about some of perhaps the policies or the new ideas that are in the best position to protect these sorts of investments.

DAVID BLANCHETT: I think, that, again, everyone's in a different spot in terms of saving for retirement. And, I think, that there's definitely under savings. I think that individuals haven't saved enough. And so the first thing you do is get people to save more. As I had mentioned, I think, we need to increase coverage and increase savings rates.

And then, I think, as you approach retirement, you're asking questions. How am I going to make the income that I have or, excuse me, the savings that I have last for a lifetime? And that's a really tough thing to figure out. So, I think, that we need to give people more access to savings, better strategies to help them kind of figure out how they're going to make their money last.

RACHELLE AKUFFO: And, Jean, in the middle class seem to be getting squeezed the most in these sort of situations because they are actually at greater risk of running out of money in retirement. How should they go about protecting themselves?

JEAN CHATZKY: It's interesting this question of running out of money in retirement is not one that we have really educated people on nearly enough. We've talked for years about the need to accumulate money for retirement. You should save. You should max out. You should grab the matching in your 401(k). You should open an IRA or a SEP IRA if you don't have access. Contribute, contribute, contribute.

But the question of running out is a very different question and requires a strategy that is just as well thought out. Because we're talking about a period of retirement that can last 30, 40 years. And so that involves thinking about things like, how can I delay Social Security so that I am able to get the most for that investment that I've made in my own future? How can I put my career into a trajectory so that I can continue to work and put off taking Social Security until I'm full retirement age or even longer.

And then it involves thinking about things like ways to make the money that you've saved yourself last. We're embarking on an era where more plans will be able to offer things like annuities within retirement plans. That's going to beg some understanding. It's going to require increased education. But those are the sort of strategies that particularly people in the middle class are going to need to think about in order to make sure that their money goes the distance.

RACHELLE AKUFFO: And, Ida, as we know, when it comes to money, when it comes to anything really simple and easy don't always go hand in hand. But a lot of people are actually sacrificing some of the essentials to try and make ends meet because of inflation. So, Ida, are there any public policy proposals that are either in place or in the works to really help people so that they don't have to make some of these very hard choices?

IDA RADEMACHER: Yeah. I think, that there's-- people don't just have a short term financial life and a long term financial life and then the rest of their life. They have to think about their health care, their housing, their retirement. And then have to think about that now.

And as Jean said, for longer and longer life spans-- and those issues are especially critical for women who tend to have even longer life spans and have a wage gap and a wealth gap to contend with as well. Many also work part time. And there has been relatively few opportunities for retirement savings in part time work.

And that is hopefully another thing that will change. And, I think, the other thing that is critical, especially during a recession or any time is just understanding that people today who are working and are trying to even extend those working years, like we just talked about, are probably going to be working with multiple employers over time. And the savings you accumulate here or there in very small pots often don't talk to each other. They don't connect. They don't actually come into the same account.

So increasingly when we really want to help folks, we want to think both about the portability of retirement savings. We want to make it easy for them. And we need to think as well about how else do we manage expenses. And not just as an individual level, which is important, but in terms of policy.

The biggest issues in addition to savings and continuing to work and get earned income is what's going to happen with rising costs. Long term care insurance, health insurance, all of those things come into play as well. And there's other policy dimensions that we should be thinking of as well to help make sure that as much of the routinely positive cash flow people are getting into their wallets can stay with them to handle the essentials.

RACHELLE AKUFFO: And it's tough because obviously, David, you can only plan for so much. Obviously, nobody saw COVID coming. And with inflation at a 40-year high, you have an entire generation of people who've never experienced inflation on these levels. So when people are trying to figure out how they can ensure that their retirement accounts for some of these potential inflation risks, what strategies do you recommend?

DAVID BLANCHETT: Well, I mean, the problem is there's not necessarily a ton of strategies out there that are linked directly to inflation. I think we've all mentioned this already. But the one strategy that does have an explicit inflation hedges, delayed claim of Social Security benefits are linked to the CPIW. It's a great way to kind of hedge both inflation risk and longevity risk.

I think that there's a need for other types of investments called real assets and portfolios, things like commodities, things like tips, infrastructure assets that just tend to do well when inflation is higher. I think that too often investors think about just stocks and bonds. I think adding things to portfolios that they can help ensure when inflation is high. The portfolio is better is really important for investors that have 20 or 30 a year time horizon.

RACHELLE AKUFFO: And, Jean, how do you see protected income playing a role in this, the sort of strategy that people can have?

JEAN CHATZKY: Look, I'm a fan of making sure that you've got enough protected lifetime income to at least cover your fixed costs. I think we would all agree that the length of retirement is so long. You are going to need growth on your investments throughout. You're going to need money in the market throughout retirement in order to do things like keeping up with inflation.

But having enough protected income in the form of Social Security, any pensions if you're fortunate enough to have them-- and many people are not these days. Most people are not these days-- as well as annuities that you have crafted or picked up along the way, just enough to make sure that you can keep a roof over your head, that you can make your Medicare premium payments, that you can put food on the table, that you know that your fixed costs are covered and that you don't have to worry about those things.

The wild card, and Ida talked about this, is health care and long term care. And that's where it gets very, very difficult to insure for the outcomes because we don't know what the outcomes are going to be.

RACHELLE AKUFFO: So then, David, a lot of people then get a lot of acronyms about different accounts that they can use to perhaps help them with market volatility or as best as they can be an inflation hedge. Are there specific types, though, of retirement accounts that you would recommend that will help better protect people?

DAVID BLANCHETT: Well, you know I know there's certain types of accounts, right? I mean, there's 401(k)s. There's IRAs. There's taxable accounts and all that. I think that the key is really kind of trying to understand how this all makes you feel to some extent, right? And I think that-- I work for an investment company. We spend all day building these efficient portfolios.

And this is maybe to Jean's point. If you can't sleep because the market's down 25%, inflation's up 8%, you have the wrong strategy. I think that there's the academic aspect of these decisions and the behavioral aspect. I think that there are assets that you can include in portfolios.

But to me there's these larger structural issues about how do I craft a plan that makes me comfortable with all the uncertainties that exist out there? So, I think, that that's kind of the key is understanding not only what is the right kind of portfolio aspect of things but also just the right strategy.

RACHELLE AKUFFO: And, David, you raised an interesting point because obviously everyone has their own personal relationship with money and risk that's really going to inform how they approach these things that you mentioned. If these are the sort of things keeping you up at night, perhaps, a different strategy, a different sort of retirement account.

Ida, I want to bring you in here because as we look at the demographics how they're changing, by 2024, the US is expected to hit peak 65 when the greatest surge of Americans turning 65 comes into play. So when you think of things like employers and financial professionals, what role do you think this holistically can all play in really improving the outcomes for some of these retirement savings accounts?

IDA RADEMACHER: Yeah, it's a great point. And as Jean said even though pensions defined benefit plans are on the wane, this is the last generation that had some kind of high proportion of folks that had access to that. And, of course, those pension plans did help with the cost of living as it rises.

When you're in just 401(k) savings or you don't have any savings at all, these are the things that we have to start to contend with as we look at retirement policy for those 65 and below and how we make sure that we have access for every worker in this country. Because of that, the role that employers play is critical. And it's changing rapidly.

We really have seen a whole new generation of benefits coming together on some of the platforms in terms of your benefits bundle to help people manage both their short and long term financial lives. So emergency savings offered through an employer increasingly obviously the other kinds of different savings accounts that are helpful. We've been looking at-- people even just in terms of scheduling of surfer folks so that they can pursue either multiple jobs or jobs in career education.

It's not too late to think about what is the additional way to get training to continue to stay viable in the labor market for longer. I think that we're excited to also look at the next generation of benefits being the way that private employer benefits operate in tandem with public benefits and the safety net that's out there because that's going to be important in an inflationary space as well.

I think that the more employers really understand that the priorities of some-- rising generations are paying off student loan debt. And some of the new retirement legislation that's being-- working through Congress right now kind of recognizes and incentivizes employers to help address student loan debt at the same time they're helping people build for retirement.

So I would say watch this space. This is a place for employers who care about the financial well-being of their workers to really lean in on an exciting new set of innovations and benefits that are going to be coming online in the next few years.

RACHELLE AKUFFO: So, Jean, then as we look at this sort of next generation of benefits, it does sort of shake up what we traditionally look at when we think of financial planning, not just obviously Social Security education, but things like how we approach student loans but even health and lifestyle as well. Tell us more about that and how people should be considering that also as part of their financial planning.

JEAN CHATZKY: Well, I don't think there's any doubt that you can't separate health and wellness-- health and financial wellness anymore if you are not healthy going forward. Your financial life is very quickly going to run off the tracks. And if you don't have your finances working for you, that may be OK in your 20s and 30s. But by the time you get to your 40s and 50s and 60s, it's going to be much harder to stay healthy if you don't have the money to do that.

Employers are realizing this. And they're also realizing that their workforce is counting on them to step up and help them with all aspects of their wellness, not just their health and their financial wellness, but their mental health as well. There's been a lot of research on this. And employees are willing to switch jobs today to jump to a company that they believe actually cares about them in these areas.

So, I think, Ida is right. I think, we are on just the precipice of a whole new layer of benefits offerings that will help with these things. And I would say for consumers we know there's a very frustrating statistic out there that consumers spend less time choosing their health plan each year than they spend time choosing a vacation, right? We don't pay enough attention to these things. For consumers, it's your job to actually pay attention in October in open enrollment to see what your employer is teeing up and to see if you can actually find some additional resources to help you during these difficult times.

RACHELLE AKUFFO: And just lastly, I mean, obviously policymakers trying to push things forward to help with retirement savings. I want to just get quickly each of you your reaction. I spoke to Senator Marshall earlier and he discussed the bipartisan retirement security legislation currently being negotiated in Congress commonly referred to as SECURE 2.0. Now, he sounded very skeptical about the passage, essentially saying that it's dead in the water as the administration has its other priorities. So I just wanted to get one of his sound bite.

- Unfortunately with 13% inflation over the last two years, there just not much in there that could be a game changer. That's the real problem here. The real problem is inflation and the stock market tanking because of horrible policies coming out of the White House.

RACHELLE AKUFFO: So, David, I want to first start with your take. Is there anything you think perhaps either policymakers or even the private sector could really be doing to at least make retirement savings more resilient?

DAVID BLANCHETT: I mean, to me, I think, the biggest thing is just a more coverage. I think that we're doing well by the folks who have access to employer sponsored defined contribution plans. You do more as a country to give access to these plans, these strategies to help you who aren't saved, who can't save via their employer. So I'd like to see more movement there.


IDA RADEMACHER: Yeah, I definitely would echo David there. I would say that if there's ever a place to look for hope, the retirement legislation passed unanimously in the house. Or I think there were five votes against, 400 something for. And then the Senate it passed out of committee with all Republican and Democratic support.

So I do think that there's momentum. People are starting to make this kitchen table issue a national policy issue that can get bipartisan support. So I don't think that my own sense of hearing from different stakeholders in this mixes that we shouldn't have hope, that we can and do need to do more on retirement savings.

Obviously, the access issues. And then for those that are lower income, It's also important to think about how we actually structure and incentivize savings so that it can accumulate. So a refundable saver's credit, expanding and simplifying the saver's credit for those lower income savers is also critical.

Again, the emergency saving aspects, the connection student loans, starting to think about an inclusive savings and investment system in this country, not just the infrastructure in the market space, but how do we create the policy environment that actually creates a lifetime opportunity to save and invest in your financial future?

RACHELLE AKUFFO: And, Jean, lastly, your ideal outlook here.

JEAN CHATZKY: Look, there's a lot of good in this bill that we all hope will be able to move forward. It provides for emergency savings. It provides for additional automation into retirement plans, which is fantastic. Because we know that when people are automatically enrolled, enrollment goes up.

But I would say for now don't forget the states-- there are a number of states that have in the past few years put work and saved programs into place for smaller employers that don't have 401(k)s, that don't have work based retirement plans so that they can make paycheck deductions flow into IRAs.

And when that happens, workers are 15 times more likely to save. Other states are following Oregon and New York in teeing this up. Maryland's got something moving along. So we hope that we'll see more of those as well. It's great when it occurs on a federal level. But the states have a lot that they can accomplish too.

RACHELLE AKUFFO: Well, we'll have to leave it there. But a big thank you to our panelists. We do appreciate you joining us today. And from all of us at the Bipartisan Policy Center and Yahoo Finance, a big thank you for joining us. Take care.