Can you afford to retire?

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This article is part of our Summer reads series. Visit the full collection for book lists, guest essays and more seasonal distractions. Can you afford to retire? The answer is much more likely to be no today than it was a year ago—especially for those old enough to ask themselves the question.

The resurgence of inflation is eroding the real value of savings. Higher interest rates have caused a repricing of bonds and stocks. The result is that the pot of assets many future pensioners are hoping to live off has shrunk fast.

Pundits have long predicted that, as populations age and the number of workers for every dependent falls, those retirement savings would come under pressure—a problem they have dubbed the “pension time-bomb". The fuse now looks much shorter. The soon-to-be retired are often advised to shift their assets into bonds and out of stocks as they prepare to stop working, to protect their savings from big stockmarket corrections.

So-called “life-cycle" pension funds are usually invested almost entirely in stocks during their owners’ younger years, a strategy meant to capture the higher returns that listed equities tend to generate over long periods. As workers near retirement, these funds usually swap most of their equities for government bonds, which are supposed to hold their value. But with less than a month to go, 2022 looks set to be an appalling year for bonds.

The typical portfolio of those closest to hanging up their boots has lost 17% of its value since January. A year ago, a 65-year-old who had saved a healthy $2.5m for their retirement and invested 80% of it in government bonds and 20% in stocks globally would have typically drawn an income of $100,000. If inflation stayed modest, they would have