The Economic Outlook for 2024 Is Here, and It Isn’t Pretty

From Peter Reagan at Birch Gold Group

As this year comes to a close, as expected most people are trying to save for and plan their retirement, and have been left reeling from the effects of economic turmoil.

What kind of turmoil?

Red-hot inflation, rising interest rates, and rapidly increasing risk (even at banks) sum up only a part of the chaos affecting older Americans for the last 11 months.

That brings up an even more important question: Will 2024 be any better?

Why next year looks like more of the same

If you had only paid attention to recent media coverage, you would likely see headlines like: “Inflation easing!” – “Recession unlikely!” – or “Banks are strong!”

The problem with those stories is they don’t reveal the entire picture, at all. They also fail to encapsulate other economic problems that have reared their ugly head this year.

But let’s not jump ahead of ourselves.

Instead, let’s start with the this summary from U.S. News of what we should expect, economically, in the year ahead:

“In 2024, Inflation, […] and the risk associated with poor returns in early retirement are among the factors retirees should be aware of going into 2024.

“While inflation has cooled a bit in 2023, the rate of inflation in 2022 was the highest since 1981,” said Lisa Featherngill, senior vice president and national director of wealth planning at Comerica Wealth Management, in an email.

“As we all know, prices have increased substantially in the last two years. Thus the amount needed for funding retirement expenses has increased,” Featherngill said.

Put simply, retirees will be left with two options to handle the “tax no one voted for,” either save more or chase higher returns.

But “better returns” appear like they will be much more difficult to get as we head into 2024, because everything is so much more expensive.

Featherngill finished her quote by explaining why we can’t count on better returns, which: “may not be an option for someone within 10 years of retirement who cannot afford the impact of volatility.”

That makes even more sense once you see the graph below, which shows pretty clearly that inflation hasn’t eased enough:

To combat inflation, the Federal Reserve had been hiking rates every month until recently, as you can also see on the chart above.

As we head into next year, those higher rates will be bearing negative consequences.

For example, 30-year mortgage rates have risen to 7.44%, the highest rate since 2000. Credit card interest rates average almost 21%, which are the highest in a decade, and make other economic problems like record consumer debt even worse.

Rates this high can affect banks too, by increasing the cost of their liabilities (and potentially increasing the chances for another bank crisis).

On top of all that, it doesn’t appear that Federal Reserve Chairman Powell plans to loosen monetary policy any time soon:

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks for an audience at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”

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However, he also noted that policy is “well into restrictive territory” and noted that the balance of risks between doing too much or too little on inflation are close to balanced now.

This means none of the problems we revealed above will resolve themselves any time soon. They will all most certainly continue well into 2024.

Is there any possible solution for older Americans who are nearing retirement?

The answer to that question follows exposing another big economic problem that could really start to take shape next year.

Sequence-of-risk returns (the first few years are the most important)

If you’re nearing retirement age, you’re running out of time to account for any mistakes or a prolonged recession.

It’s an idea known as sequence of returns risk, which we’ve covered before.

It was summarized by advisor Kristian Frinfrock as older Americans who plan for retirement “as though retirement is still a long way away, even though they are soon to retire or are already retired. Then… they’re forced to sell investments for income. They’re depleting their savings faster than planned and drastically increasing their risk of running out of money later in life.”

Usually, it takes a big mistake or an ill-timed recession to practically force someone who is saving for their retirement to increase this risk substantially.

Wade Pfau, a professor of retirement income at the American College of Financial Services, explained the consequences of increasing this risk so late in your life can be dire:

That risk basically is about how the order, or sequence, of returns over time – combined with your portfolio withdrawals – can impact your balance down the road. If there’s a downturn early on, it can derail a whole retirement plan.

Certified financial planner Avani Ramnani summed it up nicely: “If there’s a big loss in your assets and you’re taking withdrawals, you could be taking more from your portfolio than what it can make up for.”

One possible way out of this mess is to make a critical pivot in your overall strategy…

Put your savings on defense

Shifting your mindset from growing your savings to protecting your savings could help you make the kind of decisions necessary to improve your financial security, even if a recession starts in early 2024.

Diversifying your retirement savings with precious metals like gold and silver could help you if you need to consider a safe-haven to store your money.

That’s because gold and silver have been historically proven to help store purchasing power (value), while they’re also considered inflation-resistant investments.

This recent report highlights gold’s strength during the current moment, which is similar to its historical value:

Gold prices are on course to hit fresh highs next year and could remain above $2,000 levels, analysts said, citing geopolitical uncertainty, a likely weaker U.S. dollar and possible interest rate cuts.

Prices of the yellow metal have risen for two consecutive months with the Israel-Hamas conflict boosting demand for the safe haven asset, while expectations for interest rate cuts have provided further support. Gold tends to perform well during periods of economic and geopolitical uncertainty due to its status as a reliable store of value.

Bottom line: The best time to consider pivoting your saving strategy from offense to defense is now.  Among other options, pivoting could help your retirement savings weather out the storm.

As the world moves away from dollars and toward Central Bank Digital Currencies (CBDCs), is your 401(k) or IRA really safe? A smart and conservative move is to diversify into a physical gold IRA. That way your savings will be in something solid and enduring. Get your FREE info kit on Gold IRAs from Birch Gold Group. No strings attached, just peace of mind. Click here to secure your future today.

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