Is Your Retirement Income Keeping Pace with Inflation?

The financial wisdom of famed New York Yankees baseball catcher Yogi Berra may have summed up inflation best when he opined, “A dime ain’t worth a nickel anymore.”

Inflation is the silent villain of retirement accounts. During normal times, the rising cost of living slowly creeps along. It erodes savings that don’t benefit from growth in the market or collect interest from a financial institution.

Over the past 30 years, the average inflation rate has been 3.22%. If your retirement savings is not earning at least this amount, you are losing money. In addition, goods and services do not increase in cost at the same rate. For example, the cost of medical and non-medical care for seniors has steadily increased 50% faster than the average inflation rate.

Hedging Against Inflation

For retirees and pre-retirees, implementing ways to hedge against inflation can mean the difference between a comfortable retirement and one that financially falls short. Here are a few things you can do to curb the impact of inflation:

Lower Housing Costs – Real estate often keeps up with or surpasses the inflation rate. Downsizing your home is one way to gain access to capital to pay for medical or non-medical care while simultaneously reducing your monthly living costs.

Real Estate Investing – If your home is increasing in value, so are other pieces of property. Consider investing in real estate investment trusts or exchange-traded funds, as property value tends to keep pace with inflation.

Purchase an Annuity – Fixed income annuities with inflation riders are designed to keep monthly payments in line with the cost of living. There are several varieties of annuities on the market today, making it essential to understand the specifics of each.

Balanced Portfolio – Investing in stocks carries investment risk, while bonds are at risk when inflation increases. Maintaining a balanced portfolio based on your investment profile and the state of inflation can help reduce inflation’s erosion of your account.

I-Bonds – The treasury offers inflation-adjusted bonds, including a fixed rate of interest plus a variable rate of interest tied to current inflation rates. There is a penalty if you cash in your bond within 5 years, although your initial investment will always be preserved.

When inflation strikes, we feel it in our pocketbooks. Fuel, food, and housing all become visibly more expensive. Shepherding your retirement plan during inflationary times is stressful and wrong moves can cause more damage than sitting tight.

To review your retirement plan options, contact my office. Together we will take a financial snapshot and review options to help you stay ahead of the silent inflation villain.