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Given the intense cycle of US and Israeli airstrikes against the oil-rich country of Iran that began on February 28, it may be difficult to separate facts from noise – especially with regard to the consequences of the conflict over retirement accounts.
That’s why I asked ChatGPT to put an end to the controversy and provide a straight answer on how this geopolitical conflict could affect the average American’s finances, especially as it relates to retirement savings. Here’s what he shared.
Short-term effects (weeks and months)
Expect huge volatility in the market, especially as this war continues to lift the stock market and spur short-term selling from investors fearful of uncertainty. If the war escalates, the S&P 500 could drop 10% or more.
What does this mean for my (and your) retirement savings? Portfolio balances will likely (and temporarily) fall and day-to-day volatility will continue until the war ends.
If the war drags on for weeks or months, rising oil prices and subsequent higher energy costs could add about 0.7 percentage points to global inflation. Higher inflation will reduce the purchasing power of retirement savings, and force our bonds to temporarily underperform.
Finally, investors typically shift their holdings to “safe assets” (Treasury, gold, US dollars) in times of high uncertainty. Doing so could cause some of your riskier assets, such as growth stocks and emerging market investments, to decline. There may also be some increase in your bond fund.
Long-term effects (years and beyond)
Historically, markets often recover after initial shocks related to geopolitical conflict and war, which have little long-term impact on retirement investors. That said, if the war drags on for years, there is a risk of high interest rates and inflation due to massive defense spending and deficits. Those inflationary pressures can impact retirement bonds as well as reduce the purchasing power of our retirement savings.
ground level
The most extreme effects of the Iran war will be felt in the short term: volatility and stock declines will likely cause fluctuations in retirement portfolios, as well as higher inflation rates if the war continues for months rather than weeks.
Unless the Iran war seriously escalates into an omnipresent and unpredictable global conflict, the long-term impact will be minimal, as the markets governing our retirement savings will adapt and absorb the shock of war over time.
Editor’s note on political coverage: GOBankingRates is non-partisan and strives to objectively cover all aspects of the economy and offer balanced reporting on politically focused finance stories. You can find more coverage on this topic here GOBankingRates.com.