Safeguarding Your Retirement: Clever Methods to Maintain Wealth Against Inflation and Budgeting During Spending
Inflation, a silent yet persistent force, can impact the purchasing power of savings and investments. However, with careful planning and the right strategies, retirees and pre-retirees can limit its impact on their retirement plans.
According to a recent survey by Charles Schwab, 57% of 401(k) plan participants consider inflation the main obstacle to a comfortable retirement. In response, 23% of respondents have adjusted their 401(k) portfolio due to inflation and volatility, with 79% shifting to more conservative investments.
One key strategy is to choose inflation-resistant assets. Stocks, historically, grow over the long term faster than inflation. Treasury Inflation-Protected Securities (TIPS) and inflation-protected bonds increase in value with inflation. Commodities such as gold and real estate also often maintain or increase value during inflation periods.
Another approach is to consider annuities with inflation features. Deferred Income Annuities (DIAs) offer higher future payouts by deferring income, helping income keep pace with inflation later in retirement. Diversifying across multiple annuities can also reduce market risk and provide flexible income streams.
Maintaining emergency and healthcare funds is also crucial. Setting aside accessible savings for emergencies prevents dipping into investments during downturns. Preparing for rising healthcare costs through long-term care insurance or life insurance riders can safeguard retirement savings against inflation-driven expenses.
Working with financial professionals can help retirees optimize portfolios, adjust strategies according to inflation, and develop a holistic plan addressing income, taxes, and healthcare costs. It's advisable to avoid holding excessive cash positions, as cash loses purchasing power during inflation.
Inflation has crept up again, and it is a concern for pre-retirees and retirees. With tariffs starting to impact certain industries, economists expect the July CPI to be higher. In June, the Consumer Price Index was up 2.7%. Given the recent run in the market, it might be a good idea for 401(k) investors to review their asset allocation, take some profit, and move it over to fixed income.
Regardless of how much you saved in retirement, it is important to pay attention to your budget and spending during inflationary periods. Small savings over a long period can have a profound impact on retirement. Inflation lowers the purchasing power of savings and fixed income, making it harder to maintain one's standard of living.
By implementing these strategies, retirees and pre-retirees can preserve purchasing power and financial security during inflationary times, ensuring a comfortable retirement despite the rising cost of living.
[1] "Investing for Retirement in an Inflationary Environment," The Balance, https://www.thebalance.com/retirement-investing-strategies-for-inflation-3505928 [2] "Annuities: What You Need to Know," AARP, https://www.aarp.org/retirement/investing/info-2019/annuities-what-you-need-to-know.html [3] "Deferred Income Annuities: A Retirement Income Solution," Forbes, https://www.forbes.com/sites/nextavenue/2019/08/08/deferred-income-annuities-a-retirement-income-solution/?sh=61565d5e48a4 [4] "Financial Planning for Retirees: A Guide," Investopedia, https://www.investopedia.com/articles/personal-finance/091215/financial-planning-retirees-guide.asp [5] "Retirement Planning in an Inflationary Environment," Money Under 30, https://www.moneyunder30.com/retirement-planning-inflationary-environment
- To safeguard their retirement savings from inflation, retirees and pre-retirees may want to explore investment options such as inflation-resistant assets like stocks, Treasury Inflation-Protected Securities (TIPS), commodities like gold and real estate.
- In addition to smart investment choices, it's crucial for retirees to maintain emergency and healthcare funds, as these savings can help prevent dipping into investments during downturns and protect against inflation-driven expenses in the future.
