How Will Inflation Affect My Retirement Planning Strategy?

How Will Inflation Affect My Retirement Planning Strategy?


Inflation is the word on everyone’s mind nowadays, as prices for everyday goods rise and purchasing power diminishes. Inflation rates have skyrocketed, and if you’ve taken careful time to plan for your retirement, you might be wondering what this means for you and how you can prevent your hard work from heading down the drain. 

Fortunately, with careful planning and preparation, you could minimize or nullify the effects of inflation on your retirement plan while setting yourself up to enjoy the benefits of a more buyer-friendly market.

How Much Money Am I Losing?

Before you proceed, it’s essential to understand how inflation affects you. First off, consider Social Security benefits and their quickly diminishing returns for retirees. Social Security payouts have yet to match the rising housing, food, and medical care costs. Even yearly cost-of-living adjustments (COLAs) have failed to keep pace with inflation. 

If you’re investing most of your money this way, you are generally at a severe disadvantage in terms of buying power. Even during a period with expected inflation, CDs and savings accounts only average about a .06% interest rate. It’s good to have liquid savings, but consider diversifying your portfolio to combat inflation.

Assume a Long-Term Inflation Rate

To try and build the best retirement plan you can, it could be helpful to assume an inflation rate to help you balance the highs and lows of the market. The Federal Reserve targets an interest rate of 2%, and despite the increase in inflation recently, the rate for the past 30 years has only been 2.4%. Assuming a rate around this (or higher or lower depending on the rest of your strategy) could protect you from market volatility and help you not overreact to rapid price increases.

Review Investment Strategies

Reviewing your investment strategy is a great way to ensure that your investment portfolio is appropriately positioned to combat inflation. Remember, your retirement strategy is something you want to be taking a look at repeatedly, so ensuring that you’re allocated to the appropriate sectors that benefit during high-interest periods is a great way to maximize your returns.

Real Estate Investment Trusts (REITs) and Treasury Inflation-Protected Securities are some sectors to that have historically done well during inflationary periods. A good rule of thumb is that having a 60/40 stock/bond portfolio is a good counter to inflation, which you can get assistance with from a well-regarded wealth and asset management company. Real estate, the energy sector, and diversified equity funds are all investments that can help balance out rising inflation.

Consider Less Risky Investment Plays

Investing in the market can be fun, but periods of high inflation are very unpredictable. As we have seen in the past few years, market volatility is nothing to mess with, and you for sure don’t want to bank your retirement income on a few ill-timed tech stocks. Consider less risky investments that are more likely to guarantee you growth and reduce the risk of a quick market flip.

Annuities can typically positively impact your investment strategy during a period of high inflation. These long-term retirement investments are designed to provide you with a fixed income throughout a certain period of time outlined in a payment contract you negotiate. You give yourself a stable floor to rely upon through periods of inflation that can keep you afloat as you manage rising prices.

Consider a Wealth Management Firm

Engaging a wealth management firm is a great way to try to balance the effects of inflation on your retirement plan. Periods of inflation are risky, but well-run wealth management firms have individuals who have experience researching, planning, and executing strategies during periods of inflation and other market conditions.

Reach out to Stolz & Associates, P.S. for assistance with your retirement planning and a host of other services that fit your needs. You and your family will sit comfortably knowing that knowledgeable individuals are utilizing science, research, and expertise to help ensure your money is going to the right places and is handled by the right people. Contact our associates today to get more information on wealth management and portfolio strategies in Tacoma, WA, and surrounding areas.