The current rising inflation rate can be extremely nerve-racking when you are considering your financial portfolio. For the past several years, the inflation rate has been rising gradually. However, at this point in time, it is a historic high for inflation rates. In March of 2022, the inflation rate hit 8.5%, the highest rate since December of 1981. It’s completely understandable to have concerns about your retirement plan with the low-interest rates and high inflation rates. Continue reading to learn more about inflation and your retirement plan.

Even in normal economic years, planning for retirement is scary. Having to make sure that you have saved enough money to sustain yourself for 20 to 30 years is a massive amount of pressure. And with the cost of living rising, your dollar is worth even less, making your savings last less time. However, there are a few ways to try and protect your retirement savings from inflation.

Don’t Let The Inflation Rates Drive Your Retirement Planning

The economy has taken many turns throughout your lifetime. Inflation is not caused by there being too much money within the economy, but by the limited supply of goods. The United States is still recovering from the supply chain issues caused by the Coronavirus pandemic in 2020. It will also take several more years for businesses and the economy to fully recover from the Covid-19 impact. The economy has experienced inflation rates before and will bounce back again.

To help combat inflation, many people take on more risk in their retirement planning. While this may seem like a good idea, aggressive investing strategies will not fix the actual issue of inflation. Risky investing can end up leaving you with nothing for retirement, purely based on stock market changes.

Keep Inflation In Mind, But Don’t Make It Your Main Concern

The average inflation rate in the United States has been 3%. While 3% does not seem like much, over time the cost of living will increase substantially. In relation to retirement, this shows that the buying power you have when you first retire will be much lower after 20 years of living off of your fixed income.

While thinking about having to purchase the same amount of goods with less money is concerning, you need to understand the true impact of higher prices. The Consumer Price Index is used to calculate the inflation rate based on the prices of generic groceries that the average American household uses. But your personal inflation rate could be much different than the overall inflation rate. Your grocery items increasing monthly could do more damage than other rising costs or you could care less about grocery prices and are concerned about housing prices.

Be sure to keep yourself aware of overall inflation but focus more on how inflation is affecting you.

Invest Instead of Savings

One of the best ways to beat inflation is through having a return rate higher than the inflation rate. If you are keeping large sums of cash in regular savings accounts, you aren’t allowing your money to work for you. By utilizing a high-yield savings account or mutual funds, you can keep your money shielded from inflation if you are getting a nice return rate.

Don’t Count Social Security Out

Social Security benefits are one of the best income sources for retirees. Almost half of retirees in the United States rely on Social Security benefits for at least 50% of their income. These benefits are secure income (if you earned enough credits) with a built-in cost of living adjustment based on the inflation rate.

Continue Working In Retirement

One of the best ways to keep your retirement savings safe is to keep working and earning income. Every paycheck you receive from a job is money that remains in your retirement account. Also not withdrawing funds from your retirement savings allows more time to compound interest. You don’t need to work overtime or even full-time; a part-time job can suffice.

Rising inflation rates can be concerning when you’re trying to keep your retirement savings safe. If you need help implementing inflation shielding tactics into your retirement planning, our advisors at Mooney Lyons are happy to assist!

Sources:

https://www.forbes.com/advisor/retirement/inflation-retirement-investments

https://www.kiplinger.com/retirement/604487/will-inflation-derail-your-retirement-plan

https://tradingeconomics.com/united-states/inflation-cpi