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Shrinking economy raises 401(K) concerns

Inflation remains at a 40-year-high
Inflation struggle.jpg
Posted at 5:39 AM, May 10, 2022

BALTIMORE — The year 2022 has gotten off to a rocky start with interest rates up, the stock market dropping, and the economy shrinking.

Rising inflation and the economic uncertainty which comes with it have many people concerned about their financial future.

People are seeing the value of their 401(K)s losing money and wondering what should they do.

The economy has a lot of people nervous and wondering what should they about it and if the economy is heading into a recession.

The economic ups and downs of 2022 are shaping up as one scary ride which have people anxious to get off and back on solid financial ground.

Brokers International CEO Mark Williams said “we seen have a lot of uncertainty and markets are acting like that. Right? The stock market is fluctuating heavily and we do have rising interest rates, so I’m not doom and gloom, but I think we’re in a period of time out where we haven’t seen it a number of years.”

Inflation is at a 40-year high of 8.5%.

The website Trading Economics shows the average rate of inflation over the last 100 years is about 3.25% percent.

It’s why Williams pointed out that the average rate of return investing in the stock market on the S&P 500, historically outpaces inflation at 7%.

“Your retirement usually has a long-term plan and this is a short short term and fluctuation in rates. So, I tell most people, don’t make a knee-jerk reaction. In fact, if it’s still if you have a 10 or 15 your time horizon no reason to do anything yet with your 401(K),” Williams said.

Those planning to retire within the next three to five years might want to take a different strategy.

“You might start wanting to take a look at things that might be a little bit different mix as opposed at equities and bonds. So, equities are the stock market, they fluctuate very heavily. The bond market generally speaking is a little more conservative so as we get older and closer retirement the mix of equities and bonds starts to shift a little closer towards bonds,” Williams said.

Williams said people who have extra cash can take advantage of the downturn to invest more money into their 401(K), but if not, just keep doing what you're doing and keep those paycheck deductions steady.

“We’re seeing a lot of fluctuations in the market and if you continue to invest regularly you will get the benefit of the downswings and the upswings,” Williams said.

Currently, the economy is on a downswing; it shrank in the first quarter of 2022. Two consecutive periods of an economic decline is generally considered a recession. Some are concerned these ups and downs are leading towards a financial crisis.

“I wouldn’t be surprised if we went into recessionary period. So, people should be really concerned about their excess spending, that’s one thing. You want to worry about. The five-dollar-Starbucks coffee every single day might be one of those things that you give up a little bit right because we’re going into a little tougher time but again it’s only been one quarter,” Williams said.

These are just a few recommendations, while Williams suggests people should consult their own adviser before making any changes to their 401(K) plans.

Meanwhile, the U.S. Bureau of Labor Statistics releases its latest numbers on inflation for April on May 11. The April Consumer Price Index will show which direction inflation is heading, if it's still going up, and by how much.

Williams said he doesn't have a crystal ball but despite the numbers, he remains optimistic for long term investing in retirement savings.

As far as what to moves to make right now, his best recommendation is find a way to increase savings and decrease debt.