Suze Orman: Here’s How To Protect Your Retirement From Inflation
Written by
Nicole Spector
Edited by
Kristen Mae
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The mere word ‘inflation‘ may summon feelings of indignation. Look at this persistent economic phenomenon storming in and robbing us of our hard-earned money while making the cost of living rise as wages barely budge. Inflation is tough to handle — even when you recognize that some inflation is actually a good thing and that zero inflation, or complete price stability, can be detrimental in its own way.
As consumers buying groceries, filling up the gas tank or paying utility bills, we know inflation is hurting our money right now. But we may not think very long-term about it. We may not consider how inflation erodes the value of today’s money tomorrow.
According to the Consumer Price Index Inflation Calculator, $1 million in 2021 would need to grow to about $2.14 million in 2045 to maintain the same purchasing power, assuming a 3% annual inflation rate.
We all need to commit to helping our retirement savings survive and thrive despite inflation. Financial guru Suze Orman offers several ways to do this.
Stay in Stocks
Like most financial experts, Orman champions staying invested in stocks for the long haul. They are generally more resilient than bonds, which Orman says “struggle to keep pace with inflation.” She notes that stocks have historically out-earned inflation over long periods.
But stocks do go through rocky times, and your retirement portfolio must be able to handle those losses. Plan according to your age and when you expect to retire.
“If you are young, you have time to ride out bear markets for stocks, but if you are older, you likely will want to keep less invested in stocks than when you were 20, 30, 40, 50 years old,” Orman wrote on her blog. “One rule of thumb to help you think through your right mix of stocks and bonds or cash: subtract your age from 100 (or 110 if you are in good health and other members of your family have lived into their 90s). That’s how much you might consider keeping in stocks.”
Read Next: I Help People Retire Every Day — Here’s the Most Common Retirement Mistake People Make
Delay Taking Social Security
None of us knows what’s going to become of Social Security in the future. We’ve long been in a weird state of suspense and denial, knowing that the Social Security trust fund is running low and that little is being done to shore it up.
It’s incredibly unlikely Social Security will disappear, and benefits should continue, but we shouldn’t bank on them entirely. Orman also advises delaying Social Security benefits if you can.
“I think delaying Social Security as long as possible is a smart move if you are in good health in your early 60s,” Orman wrote. “That’s because between 62 and 70 Social Security pays you to wait. Each month your eventual benefit increases. That’s the ‘delayed’ credit. But you also get the COLA for those years as well. That adds to the value of your eventual benefit.”
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