Weekend Reading: How to Use Economic Context in Retirement Income Decision-Making

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading economic factors retirement income Weekend reading economic factors retirement income
Weekend Reading

We are experiencing a variety of unique factors that affect our economy today. And, while you might think these areas produce undependable data in the realm of retirement planning, that’s not always the case when it comes to making long-term decisions, specifically in regard to your income strategy.


This article focuses on three economic factors that can impact your retirement portfolio, and therefore should be taken into consideration as part of your planning process. They are as follows:

Expectations around market return based on long-term historical price and earnings data: As an analysis of market activity, the Cyclically Adjusted Price/Earnings (CAPE) ratio is utilized to track stock valuation over a period of ten years or more. This measurement is most relevant to stock-heavy portfolios - and, given today’s high CAPE values, this makes portfolio withdrawals a necessary area of focus to maintain a sustainable income stream.

‘Nest Egg’ measures that assess the impact of historical sequence of returns on savings trends and forecast future withdrawal rates: When it comes to portfolios lighter in stocks, sequence of returns can lend more information to the retirement planning process. Simply put, if you experience high investment returns throughout your working years, you might need to be more mindful of withdrawals in retirement.

Long-term inflation trends: Upon factoring in today’s inflation data, longer-term trends carry the greatest value when predicting a sustainable spending amount in retirement, especially for bond-filled portfolios. As mentioned here, long periods of low inflation can often follow with higher inflation, so it can be helpful to plan for and expect that in the future.

My two cents: There isn’t one economic indicator that will allow you to make better investment or financial decisions. Furthermore, there isn’t a combination of inputs that will help you make a perfect decision. These indicators can quite often be more of a detrimental distraction than of real benefit to your retirement income strategies, so utilize with caution.