Protecting our savings from inflation has become a significant concern. Prices soared to their highest level in 40 years during 2022. The current annual inflation rate of 3.4% poses a serious threat to retirement savings.
The situation looks even worse for money in traditional savings accounts. These accounts earn less than 1% interest while the Federal Reserve targets 2% long-term inflation. Your savings actually lose value over time. The good news is that proven strategies exist to protect retirement nest eggs from inflation’s damage.
Retirees living on fixed incomes face a tough challenge from inflation’s long-term effects. A typical 20-30 year retirement sees living costs double.
Here’s how inflation disrupts retirement in different ways:
Healthcare Expenses: Seniors pay three times more for healthcare than working adults
Fixed Income Erosion: Someone who needed $50,000 yearly in 1996 now needs $88,000 to maintain the same lifestyle in 2021
Investment Impact: Wealthy households face lower risks because they often invest in assets that grow with inflation
Retirees spend more of their budget on items that inflation hits hardest, like healthcare and housing. This forces many to withdraw extra money from their portfolios, which raises the risk of running out of retirement savings too soon.
Building a strong emergency fund is vital for retirees who face inflation challenges. Working adults typically need 3-6 months of expenses saved. Retirees should plan for 12-18 months of living expenses in their emergency fund.
These money-saving strategies will help protect your retirement:
Keep detailed records of your spending and separate fixed costs from variable expenses
Downsizing could lower your monthly expenses for property taxes, utilities, and maintenance
Keep less cash and invest for growth potential to target returns above the 2-2.5% inflation rate
Retirement security needs attention on both fronts – increasing retirement income while keeping living expenses in check. You should shift away from fixed-income sources toward income streams that adjust with inflation for immediate protection.
A well-balanced investment portfolio is the life-blood of protecting retirement savings from inflation. Most investors start with 60% in stocks, 35% in bonds, and keep 5% in cash.
Here are some inflation-resistant investments to think about:
Real Estate Investment Trusts (REITs) that bring in rental income and grow with inflation
Commodities, including energy, industrial metals, and agricultural products
Short-term bonds with lower volatility during high inflation
You might want to try a “bucket strategy.” This means splitting investments between short-term needs (1-3 years), medium-term growth (4-10 years), and long-term appreciation (10+ years). This comprehensive approach helps you manage inflation risk and market swings while keeping steady retirement income flowing.
We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”
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Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. The commentary on this website reflects the personal opinions, viewpoints, and analyses of the author, Soutas Financial, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.
