While we saw record highs in the market in 2021, there’s no telling what could happen in 2022 or beyond. There are reasons we could see a market correction, and now is the time to ask yourself if you’re prepared for one. It can be hard to chart a course for retirement when you consider market volatility, high inflation, and an ongoing pandemic.

Federal Reserve Will Wrap Up its Stimulus Program Faster

The Federal Reserve plans to slow its stimulus program, which could negatively affect the market. We could see up to three quarter-percentage-point increases in 2022 and another three rate hikes in 2023.[1] This more “hawkish” Federal Reserve policy and uncertainty about the future can cause market volatility because higher interest rates tend to negatively affect earnings and stock prices.[2] The state of the market at the time you retire isn’t in your control, but you can create a plan that works to protect what you’ve earned from a major market drop.

High Inflation

The inflation rate rose to 6.8% in 2021 – its highest since 1982.[3] Inflation can eat away at your retirement savings and could negatively affect the market and the economy. The last time the inflation rate was over 5%, the U.S. was in the Great Recession.[4] Consider the long-term impact of inflation on your savings – how much could your purchasing power decrease over the next 20 years? For example, after 20 years with a 2% inflation rate, $1,000,000 would only have the buying power of $672,971.[5] There are ways to help protect yourself against the risk of inflation.

The Ongoing Pandemic

When the world shut down in March of 2020, you probably didn’t expect COVID to stick around for this long. But we’ve seen variants, continuing cases, and resulting economic fallout. We’re seeing product and labor shortages, which are contributing to inflation and could affect our daily lives. For example, COVID-related disruptions caused over 4,000 flight cancellations around the holidays.[6] The economy could take more time to fully recover as long as the pandemic continues.

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