How Inflation is Affecting Retirement Plans

Retirement planning is becoming more and more difficult as inflation rates continue to rise. The average American consumer is already struggling with the increasing cost of goods and services, and this makes saving for retirement a daunting task. How is inflation affecting retirement plans and what people can do to safeguard their future finances?

Inflation and Retirement

Concerns about rising inflation are increasingly common. Inflation has had a particularly detrimental effect on retirement savings. The purchasing power of fixed income assets such as bonds has been eroded, while the cost of living has increased. This has caused retirees to see their standard of living decline, and has forced many to delay their retirement.

Regardless of the size of your nest egg, you may be concerned if you're already retired and living off your investment income. Questions you may have include: Can your retirement plan withstand higher prices? How much higher will inflation go? Will the stock market remain volatile and for how long? Are interest rates going to rise higher and faster than ever before? How will it affect your lifestyle?

Inflation is likely to subside from present high levels, but it may continue to exceed historical norms. According to supply and demand forecasts, inflation is expected to stay high for the next 5-10 years. While there isn't an expectation of returning to 1970s-era hyperinflation, it's anticipated that more forces will push inflation higher than lower.

How to Fight Back Against Inflation

If you're still working, now may be a good time to think about saving more—especially if your company offers a 401(k) match. If you're already retired, stay the course with your investment strategy, but consider adding some inflation-protected investments.

In order to have a retirement plan that can withstand higher prices, you need to take a look at how your portfolio is allocated. Review your asset allocation and make sure you're not too heavily invested in bonds. Many retirees are finding that they need to increase their equity exposure in order to keep up with inflation.

There are several ways that Americans can safeguard their retirement against inflation. One is to invest in assets that are not as susceptible to inflationary pressures. Another is to increase their savings rate so that they can maintain their purchasing power. Finally, retirees can consider working longer to stay ahead of inflation.

Inflation won't last forever

While inflation is a real concern for retirees, there are steps that can be taken to mitigate its effects. It's important to remember that inflation is a normal part of an economy. Over time, prices do go up—and have an impact on everything from the cost of groceries to healthcare to travel. A fiduciary financial advisor specializing in retirement can help you parse through this information and make a plan that is lower risk to safeguard your retirement.

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