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September 5, 2023

How does high inflation affect businesses and retirement planning?

Knowing the causes and effects of high inflation will help prepare your business and its workers' financial planning for its impact. Inflation is the "...general increase in prices and fall in purchasing value of money.” An example is that a loaf of bread cost $0.50 in 1980, and in 2020 the same loaf of bread cost about $2.50. Similar rises in product and service costs impact nearly every company's business decisions.

High inflation can also cause employees stress as they plan their budgets and for retirement. For example, bond prices can fall when inflation grows, lowering the value of certain assets in your portfolio. Inflation can also increase the daily expenses of your future in retirement, requiring you to save more money to cover the costs.

What impacts inflation?

Many factors can lead to higher inflation. Examples include rising production costs, growing consumer demand, and government policies.

There is no clear historical trend in the periods where higher inflation is present. Sometimes these periods last months, and other times they last years. For the inflationary period we are currently living in, it’s tough for anyone to know what steps are needed to bring inflation down to normal levels.

How does inflation affect businesses and retirement planning?

Everything and everyone in a business’s supply chain can feel the effects of high inflation. For small businesses and their workers, rising prices can make it challenging to keep things running.

As the cost of materials and services rises, business owners must decide whether to raise their prices or take on the extra costs. Since smaller businesses have tighter budgets, these decisions can impact the owner and their workers in the long term. Owners may also have to cut aspects of their operations to save money. These cuts can be anything from lowering product amounts and marketing spending to cutting wages or laying off workers.

Retirement planning during high inflation can differ from one person to the next. Knowing your employees' retirement goals will be vital in keeping their trust when money is tight. For example, workers closer to retirement might be more concerned about the negative impacts of high inflation. On the other hand, younger employees might feel less pressure because they have more time to react and increase their savings rate or adjust their investment mix.

What can business leaders do to protect their company and retirement planning?

One important thing your company can do is look at operation costs and dive into how they might be affected by rising prices. Some areas in your operations and supply chain may need to decrease, such as your production or procurement rate. Other aspects like product or service prices may call for increases.

Focusing on your company's retirement plan can also be helpful. The plan's fiduciaries must try to offer investment options that boost employees' chances of growing their nest egg, whether inflation is high or low. To do this, fiduciaries can look at investment strategies that help lower inflation risk. Examples of these methods include the use of real assets or inflation-protected bonds.

Communication is vital. Informing your consumers and employees of any changes you make due to inflation will help anchor trust. Giving the right message with clarity can help soften the impact of these tough decisions for your internal and external stakeholders.

How can you prepare for obstacles?

Find help protecting your assets with insurance solutions tailored for you. Marsh McLennan Agency has various insurance plans and consulting services to help your business during economic uncertainty.

Enhance your insurance program with the help of our risk finance and management programs. Learn where your business stands in this current economy with our risk analytics resources. These insights can help you understand insurance costs, benchmark against your peers, and highlight chances to upgrade your risk management efforts. Additionally, alternative risk tools like captive solutions and parametric insurance can provide your business with long-term relief by giving you access to needed coverage in a hardening insurance marketplace.

Inflation isn’t the only event making its presence felt in 2023. Our financial trends insights highlight other items planners should be aware of. We can keep you on track with retirement planning during volatile moments and insights into how alternative assets can fit your plans.   

The current period of high inflation doesn’t have to be daunting. Whether it's business insurance or retirement planning, Marsh McLennan Agency is here to help you reduce your risk and stress.

Meet our business insurance specialists who work with you to tailor insurance solutions for your small business. From benchmarking to in-person consultations, we have the services to help tackle your business challenges.

Guard your plan against high inflation while setting up your employees for financial success by contacting our retirement services specialists. Explore more of our retirement offerings to help you and your workers form a sturdy financial future.