Retirement Investing Strategies and Articles

How to Prepare Your Retirement Portfolio for Inflation

by Alli Thomas

Apr 24, 2022

Inflation has been a major topic in the news lately. While it has an impact on all of us, those who are approaching (or in) retirement have special concerns about rising inflation. 

As of March 31, 2022, U.S. consumer prices spiked 8.5% over the last twelve months—the fastest it’s risen since the early 1980s.  

We can blame COVID-19 for this. Consumer demand has ramped up dramatically after the last two years. At the start of the pandemic, businesses tamped down on spending and hiring. But instead of a sustained economic downturn, the U.S. economy skyrocketed due to stimulus checks, near-zero interest rates, and the success of the COVID-19 vaccine rollout.  

No one could have anticipated the economy to come roaring back as it has. And, as a result, businesses have had to hustle to meet consumer demand. They struggled to fill job openings (I’m sure you’ve noticed most places are still advertising for help) and have encountered supply-chain troubles in their quest to order supplies and merchandise. The cost of doing business has gone up—and businesses have passed those along to us, in the form of higher prices.  

So now we’re left with a few questions. First, how long will this red-hot inflation last? And second, how will it affect your investments? 

According to the AP, many economic experts predict that inflation will remain well above the Federal Reserve’s 2% target for the remainder of 2022. But they also foresee relief down the road. Supply-chain woes are just starting to dissipate, and the series of incremental interest-rate hikes scheduled for this year may mean that consumer demand will ease up. The big risk: new COVID-19 variants that could send the economy back into recession.  

It can be nerve-wracking for those near retirement (or those who are already retired) during periods of high inflation. Higher prices can really squeeze a fixed income. There are a few ways to combat them:

1. Higher prices usually also mean higher interest rates, which can benefit savers. Laddered investment products can provide a hedge since the savings rates they pay tend to stay in line with the inflation rate. 

2. Keep at least some of your portfolio in stocks. Over time—and especially if you’re not quite retired yet or in the very early stages of retirement—stock returns have historically outpaced inflation by about 3% to 4% per year.  

3. Create a budget and stick to it. No one likes the feeling of having to tighten their belts, but when prices skyrocket, you may need to pivot for a time, until things settle down. This doesn’t mean making huge sacrifices, either: drive less when gas prices spike or vacation closer to home rather than flying are two small ways that you can reel in your spending when inflation is high. 

Now’s the time to look at your portfolio and your budget to make sure they’re inflation ready. If you need a little guidance, click here to schedule a free, no-obligation review with an advisor. 

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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