Most people think of inflation and a weak economy as two different problems.

• Inflation means prices are going up.
• A slow economy means jobs are harder to find and businesses aren’t growing.

But sometimes, both happen at the same time. That’s called stagflation, and it can be one of the toughest economic environments, especially for retirees.

Here is a breakdown of what stagflation is, whether it’s likely to happen soon, and how retirees can prepare for it.

What Is Stagflation?

Stagflation starts when three things happen together:

• Prices keep rising.
• The economy slows down.
• Unemployment starts to increase.

Normally, inflation shows up when the economy is strong. Stagflation is the opposite: things get more expensive even while the economy struggles.

A helpful way to think about it: Stagflation happens when you’re paying more for everyday goods, but the economy isn’t creating more opportunity or growth.

What Causes Stagflation?

There isn’t just one cause. Stagflation usually comes from a mix of problems happening at once. Stagflation in the 1970s was triggered by a combination of policy decisions and external factors. A major factor was the 1973 oil crisis, when oil prices surged after supply was restricted, driving up costs across the economy. At the same time, inflation and unemployment were both climbing. These forces together created an unusual and difficult condition in the US.

1. Sudden Increases in Costs

If the price of something essential, like oil or food, jumps quickly, it affects everything else.

Businesses have to pay more to operate, so they raise prices. At the same time, they may cut back on hiring or expansion.

2. Flawed Economic Policy

Sometimes efforts to help the economy can backfire.

• If too much money is pumped into the economy when supply is limited, prices can rise quickly.
• If interest rates are raised too fast, growth can slow down.

Getting the balance right is difficult, and mistakes can contribute to stagflation.

3. Expectations That Prices Will Keep Rising

If people believe prices will continue going up:

• Businesses may raise prices ahead of time.
• Workers may ask for higher wages.

This can create a cycle where inflation keeps going, even if the economy is slowing.

4. Slower Long-Term Growth

Things like lower productivity, an aging population, or global disruptions can reduce economic growth while prices remain elevated.

Is Stagflation a Risk Right Now?

Lately there have been a lot of headlines about whether or not we are heading into stagflation, and financial industry experts have been sounding the alarm. Speaking to CNBC, Jim Caron, chief investment officer of portfolio solutions at Morgan Stanley Investment Management, said: “Higher oil prices, higher inflation, that leads to a shock. But if oil prices stay up for long enough, then it becomes a growth scare, so then bond yields will start to come down. If bond yields are coming down because people are worried about growth, then you’re in the stagflation mode.”

Ultimately we are too early into the Iran conflict and ensuing oil shortage to know if we will face long-term stagflation as a result. The most important thing retirees can do is educate themselves and take steps to prepare.

Why Stagflation Is Especially Hard for Retirees

For retirees, stagflation can create a “double squeeze.” It affects both how much you spend and how your investments perform.

1. Your Cost of Living Goes Up

When prices rise, everyday expenses, like groceries, utilities, and healthcare, become more expensive.

If you’re on a fixed income, that can be difficult to keep up with.

2. Investments May Struggle

Many retirees rely on a mix of stocks and bonds. In a stagflation environment:

• Stocks may struggle because companies aren’t growing as quickly.
• Bonds can lose value when inflation stays high.

That means your portfolio may not grow the way you expect.

3. You May Need to Withdraw More

If your expenses increase but your investments aren’t keeping pace, you may need to take out more money from your savings.

Over time, this can put pressure on how long your money lasts.

4. Help May Not Come Quickly

In a typical recession, interest rates are often lowered to boost the economy.

But if inflation is still high, policymakers may not be able to do that right away, meaning the situation can last longer.

How Retirees Can Prepare

No one can predict exactly what the economy will do, but you can prepare for different possibilities.

Here are a few smart steps:

Stay Diversified

Don’t rely too heavily on one type of investment. A balanced mix can help manage risk.

Include Inflation Protection

Some investments, like real estate, I-bonds, or commodities, are designed to keep up with rising prices, which can help protect your purchasing power.

Be Flexible With Spending

Adjusting your withdrawals when markets are down can help your savings last longer.

Have a Plan

The most important step is having a retirement strategy that’s built for different kinds of economic scenarios, both good and bad.

Worried About Stagflation? We’re Here To Help

Stagflation is uncommon, but it can be challenging when it happens, especially for retirees who depend on their savings.

The key takeaway is to stay calm, stay informed, and be prepared.

Not even the world’s best financial analyst can predict the future, but a strong retirement plan is built to handle whatever comes next.

At Zynergy Retirement Planning, we focus on helping clients create plans that can adapt so you can move forward with confidence, no matter what the economy brings. Have questions about stagflation? Contact us today.