I’m an Economist: 5 Ways the Iran War Could Impact Your Retirement Savings
Written by
Kerra Bolton
Edited by
Jenna Klaverweiden
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Rising tensions with Iran could affect Americans’ retirement savings. Many retirement accounts, including 401(k)s, IRAs and pensions, are tied to financial markets that react quickly to global conflict.
Oil is one concern. Iranian officials warn crude could reach $200 a barrel if fighting disrupts shipments through the Strait of Hormuz, Reuters reported.
GOBankingRates spoke with economists to identify five ways the Iran war could influence inflation, markets and long-term retirement savings.
1. Less Money To Save
Higher oil prices can quickly raise the cost of everyday essentials like food, heating and transportation.
When household budgets get tighter, many families have less money left to put toward retirement savings. “The result will be a growing affordability problem for many families who have already been struggling with the high cost of living,” said Wayne Winegarden, Ph.D., an economist at the Pacific Research Institute.
2. Slower Retirement Growth
Retirement accounts are not directly tied to geopolitical conflicts. But wars can ripple through the global economy and financial markets.
Higher energy prices and inflation can also squeeze corporate profits, said Mariano Torras, Ph.D., an economist at Adelphi University’s Robert B. Willumstad School of Business.
“That combination can pressure corporate earnings and weigh on equities, which in turn affects 401(k)s and IRAs,” he said.
3. Retirement Balance Dips
Conflicts that disrupt oil supply can quickly rattle financial markets. That volatility can cause short-term drops in retirement accounts tied to stocks.
The Strait of Hormuz is a chokepoint for about 20% of global oil, so escalating conflict could trigger near-term market declines, said Brandon Parsons, Ph.D., an economist at Pepperdine Graziadio Business School.
Parsons said long-term investors may want to stay with a buy-and-hold strategy. However, those nearing retirement might consider shifting more savings into bonds or money market accounts.
4. Weaker Retirement Returns
If the war continues to escalates, the economy could face both slow growth and rising prices. That environment can reduce investment returns in retirement portfolios.
Davide Accomazzo, a finance instructor at Pepperdine’s Graziadio Business School, said a severe escalation could lead to stagnation and inflation, which may result in “underwhelming” returns for both equities and bonds for as long as 18 to 24 months, creating a “double whammy” for traditional portfolios.
“My broader concern is the level of market returns over the next few years, regardless of how quickly this conflict ends,” he said. “The combination of policy missteps, relatively high equity valuations and persistently elevated inflation could suppress returns for some time.”
5. Less Time To Recover
Many Gen X households are nearing retirement while still relying heavily on market-based savings.
Torras said large market swings during geopolitical instability can be harder to recover from when there are fewer working years left. This can be especially challenging for investors whose portfolios are heavily weighted toward stocks and who have limited time to rebuild savings before retirement.
“Periods of geopolitical uncertainty highlight the importance of diversification and maintaining a cushion of safer assets,” Torras said. “Having enough liquid savings to cover near-term expenses can help investors avoid selling investments during market downturns.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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