Inflation Is Ruining Your Retirement in 4 Ways — Here’s How To Course Correct
Written by
Dawn Allcot
Edited by
Nicholas Morine
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As inflation remains a factor, Americans are watching their buying power dissipate. And with it, the value of their retirement savings. There are several ways inflation is ruining your retirement, from preventing you to save as much as you’d like, to tanking your 401(k) investments and stock market returns.
But don’t despair. If you’ve got some time until retirement, there’s plenty of chances for inflation to slow. But if you’ve never been through these economic conditions before — or are a current retiree — you’re undoubtedly stressing as your investment portfolio plummets (or stagnates).
These are four ways inflation is ruining your retirement — and some tips to mitigate the damage.
1. Less Buying Power
Inflation is similar to taking a pay cut — your money doesn’t go as far at the gas pump, grocery store or even restaurants. If you haven’t gotten a raise in this tight labor market, it may be time to ask for one.
If you’re a retiree on a fixed income, you’ll want to look at ways you can reduce your cost of living. Alternatively, you can consider a side gig to earn some extra cash. Plus, staying active in retirement has physical and cognitive benefits that can help you feel younger.
2. Less Income from Savings
Traditional retirement accounts, CDs, bonds and short-term savings accounts haven’t yet experienced a significant boost from the Fed’s recent interest rate hikes. “We know banks, brokerage firms and financial institutions are quick to raise rates on loans and mortgages,” Pam Krueger, founder of Wealthramp, told AARP. “They tend to react slowly to raising savings rates. If your cash is earning 2% and inflation is running at 4% or above over the next 10 years, that has a damaging effect on purchasing power in the future.”
3. Stocks Starting To Rise, Rebalancing May Be Called For
With Seeking Alpha proclaiming a bear market rally (and some investors proclaiming the beginning of a new bull market), it may make sense to ride the wave of enthusiasm and drop some coin into stocks.
However, if you’re already retired and living, in part, off investment income, it could be time to rebalance your portfolio. Make sure you are investing based on your risk tolerance, and you’re not losing a fortune in fees. A solid portfolio will have a mix of stocks, bonds, cash and commodities to hedge against risks that specific sectors may experience, according to AARP. The organization offers an “Ace Your Retirement” tool to help you plan for retirement.
4. Delayed Retirement
If you are nearing the end of your working years, you may find inflation has caused you to delay your retirement plans. If that’s the case, you may consider if moving to an area with a lower cost of living could help you retire as you hoped. You can also use AARP’s Retirement Calculator to see how much you’ll really need to retire comfortably.
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