Financial planning tools and services to put you on the path to the future you want
Your guide to financial planning and retirement
Connect with peers and experts
Get to know the people behind the company and the mission behind the work
Offer financial wellness to the people at the heart of your business
June 9, 2022
First, before reading this article, know that there are solutions to every economic problem – at both the personal and macro economic level. So, even as stagflation looms, it doesn’t mean that you’ll never be able to retire or run out of money if you do.
But, being forewarned is being fair armed. And, stagflation is a possible future problem. What is it? How could it impact your future financial security?
Let’s find out.
Stagflation is a combination of 2 pretty terrible economic concepts: stagnation and inflation. Okay, but what do those terms mean exactly?
Stagnation is when economic growth – an increase in the output of goods and services – slows. This trend triggers high unemployment.
Inflation is when the prices for goods and services rise.
Inflation has been steady for decades, holding at around 2% which is a “desirable” level of price increases. However, supply chain issues from the pandemic are making goods more expensive.
And, the war in Ukraine is causing disruptions in energy and food supply. These factors conspire to make prices rise.
So, stagflation is a phenomenon where there is little or no economic growth and high unemployment at a time when prices are high. This combination of factors can cause rather severe economic hardship for households.
The term first came to use in the 1970s.
We are not definitely headed toward stagflation. It is not a foregone conclusion and many economists believe that stagflation is actually an unlikely scenario.
We are currently experiencing almost full employment. Jobs are plentiful. If anything, businesses are having a difficult time finding workers.
Most experts agree that curbing inflation, specifically mitigating problems arising from the gas and oil crunch as well as supply chain issues are key to our future stability.
There is still time to maneuver our way around stagflation.
Traditionally, the job of fixing inflation (and stagnation) has largely been the responsibility of the Federal Reserve.
However, the tools that the Fed can use to fix inflation (raising interest rates to slow demand) can exacerbate stagnation. And, the ways to fix stagnation (lower interest rates to help businesses grow) can make wages rise and worsen inflation.
Consumer and business sentiment, interest rates, investments, the job market, borrowing, consumer demand, spending, and what things cost are some of the factors swirling in the vortex of stagflation.
“The only known remedy for stagflation is a recession,” said David Wilcox, a senior economist at the Peterson Institute for International Economics and Bloomberg Economics. (Um, that’s not good. A recession is when the economy contracts.)
The real long term problem with stagflation is that as households and businesses struggle and worry about the future, they reduce spending and investment. This economic contraction only serves to perpetuate stagflation.
Just as it is difficult for regulators to manage stagflation, it is also difficult for individual households. The key may be to focus on flexibility in all aspects of your finances: income, investing, spending and attitude.
The economy and your approach to your money is not always an art. It is not always a science. In many ways it is most often an emotion.
Emotions like confidence and attitudes like optimism have a huge impact on how the economy performs. If you feel good about your economic prospects, you are probably spending more money and making investments. If you are worried, you tighten the purse strings.
It is important to be prudent. Look for the good and for opportunities.
It is probably best to assess your asset allocation and make sure you have a diverse portfolio to prepare for stagflation or whatever economic twists and turns our future brings.
Some people recommend that you have extra cash on hand for stagflation. Others suggest value investments (stock in companies with strong underlying fundamentals). Investments in things with real values like commodities and real estate is another approach.
Income producing investments may also be a good option. I Bonds have proven particularly popular. Bond ladders and fixed annuities (with inflation protection) can also guarantee returns.
Finally, some experts suggest you look at a barbell approach where you focus on both very safe and relatively risky investments, avoiding middle of the road options.
Cutting costs is a common response to inflation, stagnation, job loss, and stagflation. However, as explained above, cutting costs can perpetuate stagflation.
Adopting a flexible approach to your spending, cutting discretionary costs when necessary and spending when possible is probably the best approach. Stay on top of your budget. Monitor your costs and adjust as required.
Whether you are already retired or still working, preparing for stagflation may involve looking for ways to diversify your income streams.
Passive income streams may prove particularly useful. Seeking gig or part time work is another approach. Working longer, delaying retirement for a bit may be a pragmatic solution.
Run Stagflation Scenarios In Your Plan
While we don’t know what the future holds, you can run what if scenarios to assess your own personal financial security in a variety of possible economic conditions. And, we’ll help you look for opportunities to do better no matter what happens with the economy.
We are here to help. NewRetirement offers various ways to help you
Coaching: With our 1:1 coaching we can be a fresh pair of eyes to help make sure you’re building your plan accurately and help you understand how to best use the tool to meet your financial goals. Sign up…
Consult with a Certified Financial Planner®: NewRetirement Advisors can help you navigate the complexities of possible stagflation. Our Certified Financial Planners (CFP®) offer a flat-fee service that costs ~50% less than the competition. And our hybrid planning approach puts you in the driver seat as we collaborate with you to provide strategies to help you achieve your goals. Book a free discovery session…
Join Our Discussion Groups: We facilitate two active discussion groups that let you talk about financial planning with your peers. Get insight from others who may be in similar positions as you. Moderators share sneak peeks at some of the improvements we’re making for our platform. Join us on Facebook or Reddit…
Attend Live Events: We host online office hours on a regular basis with quick product demos and webinars. Visit the Live Events page to sign up…
Classes: We want to help you be financially smart. Our financial planning classes get rave reviews. Learn more about class options…
Do it yourself retirement planning: easy, comprehensive, reliable
Take financial wellness into your own hands and do it yourself retirement planning: easy,
Share this post:
People often worry about the wrong things. You might be watching the stock market, but other metrics are significantly more important to most.
Average inflation is high. But, what is your personal inflation rate? Find out how to calculate and what it means.
Stock market corrections are a reality, but that doesn’t make them less painful. Here are 10 tips for weathering these storms.
Our weekly newsletter full of inspiration, podcasts, trends and news.
© 2023 NewRetirement, Inc. All rights reserved.
Disclaimer: The content, calculators, and tools on NewRetirement.com are for informational and educational purposes
only and are not investment advice. They apply financial concepts in a general manner and include
hypotheticals based on information you provide. For retirement planning, you should consider other
assets, income, and investments such as equity in a home or savings accounts in addition to your
retirement savings in an IRA or qualified plan such as a 401(k). Among other things, NewRetirement
provides you with a way to estimate your future retirement income needs and assess the impact of
different scenarios on retirement income. NewRetirement Planner and PlannerPlus are tools that
individuals can use on their own behalf to help think through their future plans, but should not be
acted upon as a complete financial plan. We strongly recommend that you seek the advice of a financial
services professional who has a fiduciary relationship with you before making any type of investment or
significant financial decision. NewRetirement strives to keep its information and tools accurate and up
to date. The information presented is based on objective analysis, but it may not be the same that you
find on a particular financial institution, service provider or specific product's site. All content,
tools, financial products, calculations, estimates, forecasts, comparison shopping products and services
are presented without warranty.