Protecting Your Retirement Nest Egg Against Inflation

You’ve probably heard a lot about inflation recently. As a refresher, inflation is the increase in the cost of living over time. Remember how gas once cost 99 cents per gallon and now, depending on where you live in the U.S., you’re paying $4.00 a gallon or more? That’s an example of inflation. 

Inflation eats away at the purchasing power of your money over time. In other words, the money you have saved today won’t go as far in 10 or 15 years. Perhaps one of the biggest reasons inflation risk is so overlooked is because it had been growing at a low rate for a long time—basically since the early 1980s—until spiking during 2021 and in early 2022. 

Here are some tips that may help you manage inflation risk: 

• Look at your retirement budget and figure out what you’ll need to “earn” each year. By that, I mean how much money you’ll receive between Social Security benefits and retirement savings withdrawals. Now imagine how your budget might be affected by interest-rate movements. Pay special attention to healthcare costs, which for most retirees are the single largest expense. 
• Delay taking Social Security benefits. According to Morningstar, the average person will earn about 8% more income for every 12 months they put off claiming Social Security past their retirement age. In other words, waiting to take Social Security acts almost like a built-in inflation hedge. 
• Using your investments as a hedge against inflation. Treasury inflation-protected securities (TIPS) and real estate investment trusts (REITs) are two possible solutions. Neither asset class is highly correlated to the stock or bond markets, so they may offer attractive diversification benefits for your portfolio. 

Does your retirement strategy have what it takes to resist inflation? If you’re not sure, click here to set up some time to speak to one of our financial advisors.