Inflation is often called the “silent thief” of retirement savings. It can erode the purchasing power of your money over time, potentially derailing even the most carefully laid retirement plans.
But do not worry – there are strategies you can employ to help safeguard your nest egg from the effects of inflation.
How Does Inflation Impact My Retirement?
Before diving into protection strategies, it is crucial to understand how inflation affects your savings:
1. Reduced Purchasing Power: As prices rise, each dollar you have saved buys less.
2. Fixed Income Challenges: If you are relying on fixed-income investments, their returns may not keep pace with inflation.
3. Longer Retirements: With people living longer, retirement savings need to stretch further, making inflation protection even more critical.
10 Strategies to Protect My Retirement Investments from Inflation
1. Diversifying Your Retirement Portfolio Against Inflation
Diversification is key to managing various risks, including inflation as it helps spread the potential risk throughout your investment portfolio. Consider:
– Stocks: Historically, stocks have outpaced inflation over the long term.
– Real Estate: Property values and rents tend to rise with inflation.
– Commodities: Raw materials often increase in price during inflationary periods.
2. Consider Using Treasury Inflation-Protected Securities (TIPS) for Retirement Security
TIPS are government bonds that adjust with inflation:
– The principal increases with inflation and decreases with deflation.
– They pay interest twice a year at a fixed rate.
– While the interest rate remains the same, it is applied to the adjusted principal.
3. I Bonds: A Government-Backed Inflation Protection Strategy for Retirees
I Bonds are another government-issued security designed to protect against inflation:
– They earn interest based on combining a fixed rate and an inflation rate.
– They’re purchased at face value and can be bought in electronic or paper form.
4. Invest in Real Estate Investment Trusts (REITs)
REITs can offer inflation protection because:
– Real estate values and rents typically increase with inflation.
– Many REITs focus on properties with short-term leases, allowing for frequent rent adjustments.
5. Inflation-Protected Annuities: Securing Stable Retirement Income
Some annuities offer options for inflation protection:
– They may provide regular “cost-of-living” adjustments to your payments.
– Be aware that this protection usually comes at a cost, often in the form of lower initial payments.
6. High-Yield Savings Accounts: Short-Term Inflation Protection for Retirees
While savings accounts rarely beat inflation, they can help in the short term:
– Look for accounts offering competitive interest rates.
– Use these for emergency funds or short-term savings goals.
7. Invest in Your Skills and Health
Non-financial investments can also help protect against inflation:
– Continued Education: Keeping your skills current can lead to higher earnings.
– Health: Good health can reduce medical expenses, a significant cost for many retirees.
8. Maximizing Social Security Benefits to Offset Retirement Inflation
If possible, consider waiting to claim Social Security:
– Benefits increase by about 8% for each year you delay (up to age 70).
– This increase can help offset inflation’s impact on your overall retirement income.
9. Consider Dividend-Growing Stocks
Companies that consistently increase their dividends can provide a growing income stream:
– Look for companies with a history of dividend growth outpacing inflation.
– Remember that stocks come with their own risks and volatility.
10. Regular Portfolio Review: Maintaining Inflation Protection in Retirement
Protecting your retirement savings from inflation is not a one-time task. It requires ongoing attention:
1. Regularly reassess your portfolio: Ensure your asset allocation still aligns with your goals and risk tolerance.
2. Stay informed about economic trends: Understanding the broader economic picture can help you make informed decisions.
3. Consult with financial professionals: They can provide personalized advice based on your specific situation and goals.
What Should I do to Minimize Inflation on My Retirement?
Inflation is a real concern for retirees and those planning for retirement. However, by employing a mix of these strategies and staying vigilant, you can help ensure that your retirement savings maintain their purchasing power over time.
Remember, the key is to start planning early and to regularly review and adjust your approach as needed. Your future self will thank you for taking these steps to protect your hard-earned savings.
Start planning early, and if you are working with a financial advisor, talk to them about your specific scenario. Depending on your financial goals and situation, each tip may be implemented differently, or they may not be relevant to you.
It is important to work with a financial advisor who can customize your retirement plan according to your specific needs.
About the Financial Authors
Alexander Langan, J.D, CFBS, currently serves as the Chief Investment Officer at Langan Financial Group. In this role, he manages investment portfolios, acts as a fiduciary for group retirement plans and consults with clients regarding their financial goals, risk tolerance and asset allocation.
With a focus on ERISA Law, Alex graduated cum laude from Widener Commonwealth Law School. He then clerked for the Supreme Court of Pennsylvania and worked in the Legal Office of the Pennsylvania Office of the Budget, where he assisted in directing and advising policy determinations on state and federal tax, administrative law, and contractual issues.
Alex is also passionate about giving back to the community, and has helped establish The Foundation of Enhancing Communities’ Emerging Philanthropist Program, volunteers at his church, and serves as a board member of Samara: The Center of Individual & Family Growth. Outside of work and volunteering, Alex enjoys his time with his wife Sarah and their three children, Rory, Patrick, and Ava.
Reid Ruark currently serves as an Associate Investment Advisor at Langan Financial Group where he assists Alex in managing investment portfolios, prepares client reviews, and helps operate social media platforms. In his free time, Reid enjoys spending time with his wife, playing pickleball and connecting with members of the community.
About the Retirement Planning Firm – Langan Financial Group
Langan Financial Group is an award winning independent financial planning firm with 10+ independent awards and over 100+ 5 star reviews.
Langan Financial Group has two financial planning locations – Harrisburg, Pa and York, Pa. Established in 1985, Langan Financial Group offers a broad range of financial planning services for individuals and organizations.
By being an independent firm, we are not required to sell any specific products or meet any specific quotas. As such, we are able to focus more on providing fiduciary services and customizing a specific personalized financial plan according to your needs.
Disclosures
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
