Few things can cause as many problems for your retirement outlook as inflation. You know that when the average inflation rate increases, things get more expensive. But did you know that the types of goods and services used by the elderly are affected more by inflation than the goods and services used by younger people?
That means inflation is going to pack a bigger wallop to your retirement savings than you expect to face in your golden years.
As a matter of fact, seniors say that the most surprising thing they’ve discovered once in their retirement years is how much everything costs. When they started saving for retirement years ago, they knew that groceries, gas, healthcare and other expenses would cost more than they were presently paying, but they had no idea the difference would be so dramatic. They never could have imagined how much more they’d have to pay for everything they need.
To avoid that harsh lesson and the resulting crunch on your retirement funds, keep in mind two things:
- Your assets need to increase in value beyond inflation levels so you have the necessary savings to afford all of those pricey, but necessary products and services needed by seniors.
- We’re living longer now, so you’ll need enough retirement fund power to last through perhaps 20 or so years of retirement.
It’s something of a perfect storm, but one that can be avoided if you plan for the inflation impact on retirement funds.
Inflation impact on retirement savings
Inflation affects all of us but has a greater impact once you are no longer working full-time and can’t adjust your savings to accommodate the rising costs.
- Inflation reduces your purchasing power. When the cost of goods and services increase faster than what you have in your savings account, the money you have will buy fewer and fewer goods and services over time. Unfortunately the need for these goods and services don’t necessarily go away. Therefore, you need to be sure you have sufficient retirement income to meet your required expenses.
- Inflation consumes your savings faster. When determining your annual retirement budget, you need to add a cost-of-living adjustment to ensure you have money to buy the same amount of goods and services you require.
Inflation impact on retirement investments
When we look at inflation, no other variable has as much impact on retirement investments. It is a factor to be taken very seriously, one that will influence your investment and savings decisions now. You’re planning for the unknown. A very certain unknown, but one that cannot be predicted. So to protect your interests, your wellness and your family, plan now to maximize your investing power to stay ahead of inflation.
Perhaps you’ve been wondering if you should be more conservative with your investments as you approach retirement age. Although many people move to a more conservative portfolio as they approach and enter retirement, you may want to consider other options. In reality, you could add to your savings challenges if you act too conservatively with your savings and investments. Slowing down your investments can slow down your retirement fund growth and weaken your financial cushion for those unknown inflation level years ahead. It’s important to ensure your portfolio is a mix of investments that keep pace with inflation.
Our best advice is to speak with your financial professional now about how you can establish an investment portfolio with an eye toward beating inflation and giving yourself the best chance of investing well now for compound gains later.
Find out more about the inflation impact on retirement planning, how we determine what inflation levels may be, where we are now with regard to inflation, and the double whammy of taking care of your elderly parents now while still planning your own retirement funds to hedge against inflation by listening to our discussion on the Financial Focus: