How to Navigate Inflation While in Retirement
Top strategies for planning for and responding to inflation during retirement.
If you’re close to or in retirement, recent inflation has likely been unnerving, particularly given that stock markets have experienced significant volatility since early 2022. That is, you’re looking at higher prices while parts of your portfolio have lost value and your purchasing power has slipped. So, how should you respond to protect your retirement goals?
When it comes to investing, the best strategy generally is to think long term, develop a plan with your advisor and don’t panic. The long-term planning and diversification you and your financial professional have already done were designed to help you weather multiple scenarios, including rising inflation and zigzagging markets.
But what if you’re in or nearing retirement? Then do you have cause to panic? No. There’s still time to adjust your strategy and/or cut costs, and chances are your current retirement savings (paired with inflation-adjusted Social Security benefits) are already diversified enough to withstand inflation.
Maximize steady income
Social Security benefits and other annuitized income can help you keep pace with inflation during retirement. Most retirees, with a few exceptions, receive Social Security retirement benefits, which include a cost-of-living adjustment (COLA) designed to keep pace with inflation.
Because Social Security benefits are adjusted based on inflation, a portion of your retirement portfolio is already automatically protected from a significant erosion in purchasing power.
You can further strengthen your protection from inflation by including annuities with COLAs in your portfolio. Annuities are insurance contracts that pay out invested funds in defined, guaranteed monthly payments in the future (regardless of how the market is doing). When you choose an annuity, you can select one that includes a COLA to further strengthen this guaranteed source of income. Guarantees are based on the paying ability of the issuer.
Hurry up and wait
A diversified retirement portfolio may reduce inflation risks because some of the asset classes within it may perform well during times of high inflation, balancing out lost value from other asset classes.
But what if you’re in or near retirement and fear you don’t have enough time to make up for losses? That fear may drive action, but it’s likely better to do nothing at first. It’s time to use your sounding board. Before you make any changes to your financial plan, it’s critical that you consult with your family and financial professionals to temper heightened emotions. Because each person’s needs, goals and options are unique, a customized strategy based on your long-term goals is essential.
- Work with your advisor to develop a long-term financial plan.
- Examine your portfolio and research annuitized income sources to determine if they are right for you.
- Avoid making emotionally driven or hasty investment decisions.
Sources: investopedia.com; schwab.com; fidelity.com
Keep these strategies and considerations in mind.
Retirement and Longevity
Family & Lifestyle
Financial Advisors offer securities through Raymond James Financial Services, Inc. Member FINRA/SIPC and securities are not insured by credit union insurance, the NCUA or any other government agency, are not deposits or obligations of the credit union, are not guaranteed by the credit union, and are subject to risks, including the possible loss of principal. First Tech Federal Credit Union and Addison Avenue Investment Services are not registered broker/dealers and are independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.
Raymond James Financial Advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
There is no assurance any investment strategy will be successful. Investing involves risk, including the possible loss of capital. Diversification does not guarantee a profit nor protect against loss.