National inflation has hovered above the Federal Reserve’s 2% target for the past five years. For retirement savers, this financial pressure has created a unique set of savings challenges, says Kunal Vaed, head of Ally Invest.

One of the first steps? “It’s important to build a financial plan and revisit it regularly to dynamically adjust with the market. Many of our customers find it valuable to work with a financial adviser who can help craft their financial plan and make adjustments as their life changes,” Kunal says. (You can use this free tool to get matched to fiduciary advisers, from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.)

How should savers re-evaluate classic retirement benchmarks and savings rules, given persistent inflation and shifting economic conditions?

“Retirement benchmarks can be useful as reference points. For example, traditional glide paths in target date funds typically shifted to a 50-50 equity-fixed income portfolio at retirement. This was driven by underlying assumptions on historical asset class growth, inflation, consumer life expectancy, and retirement ages. But these benchmarks aren’t meant to be one-size-fits-all as today’s context will affect how much someone needs to save.

How can preretirees balance cash reserves without missing out on the long-term equity growth required to fund a multidecade retirement?

“Pre-retirees should think about cash and investing as complementary tools rather than competing choices. In the short term, higher yields on savings accounts and CDs have made cash attractive. At the same time, long-term investors should consider capital markets to benefit from the power of compounding, as the S&P 500 has historically generated approximately 10% annual returns since 1927.

Given persistent inflation and longer lifespans, investors may want to revisit whether a traditional glide path still aligns with their goals, time horizon, risk tolerance and spending needs. For some investors, that may mean maintaining exposure to growth assets longer, while others may benefit from a more conservative allocation.”

The decision at hand isn’t to choose between cash and investing. Consumers need to consider what they may need money for today, tomorrow, and someday. Short-term liquidity needs may be best supported through spending accounts, near-term goals through savings accounts and CDs, and long-term goals such as retirement through investment accounts. A balanced approach can help investors meet current needs while still positioning themselves for future growth.”

How can pre-retirees use automation and behavioral strategies to prepare for the transition from accumulating wealth to spending it in retirement?

“Automation can be a powerful tool to grow assets over time, because it helps take emotion and inconsistency out of the investing process …

… Beyond automation, many investors find it helpful to organize their savings based on when they’ll need the money using a bucket-based strategy. By setting aside money for short-term needs in one bucket and keeping longer-term assets invested in another, investors may feel more confident navigating market ups and downs without losing sight of their long-term plans.”

What is the most dangerous behavioral mistake you see near-retirees make when market volatility spikes, and how should they adjust their portfolios?

“One of the biggest mistakes investors make during short-term market swings is trying to time the market. We believe that time in the market is better than trying to time the market.

While market volatility can be uncomfortable, making major changes during a downturn can make it harder to recover when markets rebound. Instead of reacting to headlines, it’s important to focus on whether your investment strategy still aligns with your financial needs, goals and risk tolerance.

If market movements have caused your portfolio to drift from its intended allocation, consider rebalancing back towards the target allocation. This is especially important for self-directed investors.”

As investors transition from the accumulation phase to drawdown, what practical tweaks should they make to traditional withdrawal guidelines like the 4% rule?

“The 4% rule remains a helpful starting point, but retirement doesn’t have a standard formula that can be applied to everyone. With longer life expectancy, higher healthcare costs, and changing market conditions, it is important to consider a flexible spending approach in retirement, while keeping long-term financial goals in focus. This could mean adjusting spending based on portfolio performance and optimizing the use of Social Security and pension assets.”

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