How to Prepare for Retirement Considering Inflation

Inflation can quickly wither away one’s hard-earned savings. Every generation has witnessed inflation at some level, from the late ’70s to today. Inflation is when the cost of goods and services increases while the value of our dollar decreases. Simply put, inflation makes things more expensive!

Most retirees plan on having a fixed income when they reach their Golden Years. And although Social Security does have an inflationary component to it, rarely will it keep up when inflation runs rampant.

So how do you prepare? Here are four ways to plan for your retirement and reduce the impact of inflation.

#1 Save More

This seems obvious, but when goods and services are cheap, preparing for inflation moves to the back burner. The best time to begin saving was yesterday; the second-best time is today. But you must save enough money on a regular basis to build up a comfortable nest egg. Many financial advisors suggest saving at least 15% of your income for retirement. However, this is only a guideline. Schedule time today to review your retirement goals. With goals in hand, you can back into exactly how much you must save monthly.

#2 Invest Smartly

If you have more than ten years until retirement, consider investing in an S&P 500 index fund. Why just the S&P? Well, a new study shows that 80% of fund managers fail to do better. If professional investors are falling behind, you likely will too. As you get closer to retirement, seek advice from a fiduciary who will begin reducing your risk to conserve capital.

#3 Eliminate Debt

There is good debt, and there is bad debt. Good debt is obligations secured by an asset that produces more than the cost to carry (the interest rate). The most common forms of good debt include home mortgages and business loans. On the other hand, bad debt is like an anchor dragging down your savings goals. Therefore, loans on vehicles, boats, RVs, or any other depreciating asset need to be cleared as soon as possible, along with any unsecured debt like credit cards.

#4 Shop Smart

Watch how and where you spend your money by maintaining a household budget. Simple expenditures like eating out and clothing can quickly add up. A good tip is if you are thinking of buying something, wait 24 hours. You will often realize you don’t want the item as much as you thought. In addition to keeping tabs on spending, look for ways to save on things you buy regularly. This can include using credit card points (as long as you pay them off every month) for plane tickets, coupons for groceries, and shopping at discount stores instead of fancy retailers.