Inflation concerns are leaving many to worry about running out of money during retirement. Federal Reserve officials reassured that these prices are transitory; however, retirees are feeling the effects of higher costs with day-to-day living expenses.
The consumer price index for June increased by 0.9%, the biggest one-month change since June 2008, the Labor Department reported Tuesday and as noted by CNBC. Last month’s increase of 5.4% from the previous year was also the fastest growth in almost 13 years.
While prices are rising for a number of reasons, Richard F. Moody, chief economist at Regions Financial Corp., told the Wall Street Journal that one of the main causes of June inflation was the inability of many businesses to keep up with booming demand. Additionally, services hit the hardest by the pandemic — hotels, rental cars, air travel, entertainment and recreation — are adjusting prices to make up for declines.
Some experts are suggesting to make changes to portfolios, according to CNBC. Certified financial planner David Mullins, wealth advisor at David Mullins Wealth Management Group in Richlands, Virginia, told CNBC that he’s been aiming to add “more breadth and depth across asset classes” since the third quarter of 2020.
Many retirees have relied on portfolios with 60% in stocks and 40% in assets geared towards those with fixed income. Mullins has been looking at a portion of the 40% allocation and seeks to manage risk and potentially receive higher returns through diversification.
“I think it’s really important that clients consider nontraditional asset classes.”
Linda Erickson, CFP and founding partner at Erickson Advisors in Greensboro, North Carolina, also told CNBC that while retirees have mainly relied on bonds or certificates of deposits, these options can no longer protect long-term buying power.
“We have to produce a portfolio that will actually grow more than inflation, and we have to look at this every year,” she said, reports CNBC. “We are not in a set-it-and-forget-it environment.”
At the same time, not all advisors are making immediate changes to their clients’ portfolios because of inflation. Larry Luxenberg, CFP and founder of Lexington Avenue Capital Management in New City, New York, told CNBC that he typically saves adjustments for changes in a client’s financial situation but client allocations may change if inflation becomes, “more ingrained as it was in the 1970s.”
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